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Market Commentary 07 June 2024
Markets to get cautious start ahead of RBI's MPC meeting outcome

Indian equity benchmarks ended higher for a second straight day on Thursday as investors were relieved from the likelihood of Narendra Modi being given a third term as the Prime Minister of the country. Trading was volatile due to the expiry of weekly index options on the NSE. Markets witnessed a gap up opening and extended gains as the day progressed, as traders got support after India Ratings and Research (Ind-Ra) projects that India's current account balance (CAB) will achieve a surplus of approximately $6 billion (0.6 per cent of GDP) in the fourth quarter of the fiscal year 2024 (Q4FY24). This marks the first surplus since the first quarter of fiscal year 2022 (1QFY22), a significant turnaround from the previous quarter's deficit of $10.5 billion (1.2 per cent of GDP). Besides, a day after the 18th Lok Sabha elections delivered a surprising outcome, Fitch Ratings reinforced its positive outlook on India's medium-term economic growth. Once again, this outlook has been supported by substantial government capital expenditure and strengthened corporate and bank balance sheets. However, markets trimmed most of their gains in afternoon deals, as traders got anxious with Moody's Ratings' report stating that the BJP-led National Democratic Alliance's (NDA) slim majority in Lok Sabha may delay more far-reaching economic and fiscal reforms that could impede progress on fiscal consolidation. Traders also remained on sidelines ahead of Reserve Bank of India's interest rate decision due on June 07. Investors were hoping that the central bank is likely to maintain the status quo on repo rate at 6.50%. But, markets regained some traction in final minutes of trade and ended the session on a strong note, with support from Realty, PSU and Industrials stocks. Finally, the BSE Sensex rose 692.27 points or 0.93% to 75,074.51, and the CNX Nifty was up by 201.05 points or 0.89% points to 22,821.40.

The US markets ended mostly lower on Thursday as traders seemed to take a step back to assess the outlook for the markets following Wednesday's surge, which lifted the Nasdaq and the S&P 500 to new record closing highs. Traders also stuck to the sidelines ahead of Friday's closely watched monthly jobs report, which could have a significant impact on the outlook for interest rates. The Labor Department report is likely to show employment increased by 185,000 jobs in May after climbing by 175,000 jobs in April, while the unemployment rate is expected to remain at 3.9 percent. A day ahead of the release of the monthly jobs report, the Labor Department released a report showing first-time claims for U.S. unemployment benefits rose by more than expected in the week ended June 1st. The Labor Department said initial jobless claims climbed to 229,000, an increase of 8,000 from the previous week's revised level of 221,000. Street had expected jobless claims to inch up to 220,000 from the 219,000 originally reported for the previous week. Meanwhile, the Commerce Department released a report showing the U.S. trade deficit widened significantly in the month of April, as the value of imports jumped by much more than the value of exports. The Commerce Department said the trade deficit surged to $74.6 billion in April from a downwardly revised $68.6 billion in March. While narrower than expected, the trade deficit in April marked the largest since the gap reached $75.3 billion in October 2022. On the sectoral front, gold stocks moved sharply higher, driving the NYSE Arca Gold Bugs Index up by 3.5 percent.  The rally by gold stocks came amid an increase by the price of the precious metal.  On the other hand, housing stocks came under pressure over the course of the session, dragging the Philadelphia Housing Sector Index down by 1.2 percent. Airline stocks also showed a notable move to the downside on the day, with the NYSE Arca Airline Index falling by 1.2 percent.

Crude oil futures ended higher for second straight session on Thursday amid rising risk appetite after the European Central Bank and the Bank of Canada cut interest rates, and on rising optimism the Fed will lower rate in September. It is widely expected that a rate cut by the U.S. central bank could stimulate economic activity and boost oil demand.  The European Central Bank (ECB) has cut interest rate for the first time since September 2019. The ECB today cut key rates by 25 basis points and raised inflation forecasts for 2024 and 2025. The ECB has raised the headline inflation outlook for 2024 to 2.5% from 2.3% previously and upped the forecast for 2025 to 2.2% from 2%. Benchmark crude oil futures for July delivery surged $1.48 or nearly 2% to settle at $75.55 a barrel on the New York Mercantile Exchange. Brent crude for August delivery was up $1.50 or about 1.93% to $79.90 per barrel on London's Intercontinental Exchange.

Indian rupee settled lower on Thursday due to foreign capital outflows and rising crude oil prices overseas. Traders ignored the report that India Ratings and Research (Ind-Ra) projects that India's current account balance (CAB) will achieve a surplus of approximately $6 billion (0.6 per cent of GDP) in the fourth quarter of the fiscal year 2024 (Q4FY24). This marks the first surplus since the first quarter of fiscal year 2022 (1QFY22), a significant turnaround from the previous quarter's deficit of $10.5 billion (1.2 per cent of GDP). On the global front, euro firmed a touch on Thursday ahead of a policy decision from the European Central Bank (ECB) where traders consider a rate cut all but certain, while the dollar eased on renewed bets of a U.S. Federal Reserve easing cycle expected this year. Finally, the rupee ended at 83.51 (Provisional), weaker by 6 paise from its previous close of 83.45 on Wednesday.

The FIIs as per Thursday's data were net sellers in equity segment, while they were net buyers in debt segment. In equity segment, the gross buying was of Rs 23244.29 crore against gross selling of Rs 28048.68 crore, while in the debt segment, the gross purchase was of Rs 1729.96 crore with gross sales of Rs 1128.92 crore. Besides, in the hybrid segment, the gross buying was of Rs 39.41 crore against gross selling of Rs 55.48 crore.

The US markets ended mostly in red on Thursday ahead of a key labor market report, retreating from record highs reached in the previous session. Asian markets are trading mixed on Friday as investors awaited key economic data from China and Japan, with markets also assessing the European Central Bank's rate cut. Indian markets ended higher for a second straight day on Thursday as investors were relieved from the likelihood of Narendra Modi being given a third term as the Prime Minister of the country. Today, markets are likely to get cautious start amid mixed global cues. Overnight rise in crude oil prices as well as US treasury yields likely to dent sentiments in the markets. Traders will be concerned as foreign institutional investors (FIIs) continued their selling streak, offloading shares worth Rs 6,867.72 crore. Now, all eyes will be on the Reserve Bank of India (RBI) MPC decision on interest rates, which is expected at 10:00 AM today. The MPC kickstarted its three-day meeting on Wednesday (June 5), in the immediate backdrop of Lok Sabha election results. The six-member committee is entrusted with the task of setting India's benchmark interest rate, the repo rate. As per a private report, the central bank is likely to maintain the status quo on repo rate at 6.50 per cent and withdrawal of accommodation stance. Also, the six-member committee is likely to maintain status quo on repo rate. That apart, there will be some volatility in the markets news flow on the new government formation scheduled to take place on June 09, Sunday, owing to the weekend factor and portfolio allocations in the coalition government. Aviation industry stocks will be in focus as credit ratings agency Icra said domestic air passenger traffic grew 5.1 per cent year-on-year to an estimated 138.9 million in May and was significantly higher by around 14 per cent than pre-Covid levels. Icra also said the outlook on the Indian aviation industry is stable amid the continued recovery in domestic and international air passenger traffic with a relatively stable cost environment and expectations of the trend continuing in FY2025. There will be some reaction in stocks related to natural gas amid report that an increasing trend in gas prices and extended winter reducing gas-based power demand led to monthly gas volumes traded on the Indian Gas Exchange Limited (IGX) rising by 480 per cent to 4.92 million metric million British thermal units (mmBtu) in May. Traded volumes were up 99 per cent on a sequential basis. IGX is the only national-level gas exchange for the physical delivery of natural gas. Meanwhile, the Telecom Regulatory Authority of India (Trai) on Thursday issued a consultation paper on revising the National Numbering Plan to create a sustainable pool of new phone numbers for the country's nearly 1.2 billion mobile phone connections.

Support and Resistance: NSE (Nifty) and BSE (Sensex)

Index

Previous close

Support

Resistance

NSE Nifty

22,821.40

22,672.61

22,940.16

BSE Sensex

75,074.51

74,600.39

75,423.18

Nifty Top volumes

Stock

 

Volume

Previous close (Rs)

Support (Rs)

Resistance (Rs)

(in Lacs)

Tata Steel

579.21

172.15

169.46

174.76

State Bank of India

405.56

817.00

797.55

834.90

Power Grid

365.08

302.00

296.25

309.60

NTPC

331.71

351.10

344.15

358.90

ITC

311.20

436.40

432.44

439.04

  • HDFC Life Insurance Company has crossed Rs 3 lakh crore in Assets Under Management.
  • NCLT has approved the Scheme of Amalgamation of Bhubaneshwar Power with Tata Steel.
  • Muthoot Microfin has entered into strategic co-lending partnership with the State Bank of India.
  • Wipro has secured order worth $500 million from a leading US Communication Service Provider.

News Analysis