We have been warning all traders and investors to stay cautious despite many in markets asking you to buy.
The Indian market headline index NIFTY 50 has seen 100 per cent extension of the COVID-based rally and topped at the 26200 mark and is currently below its short-term moving averages while above the long-term 200 days EMA. Today we have seen the short covering rally of Friday fading out and the NIFTY index slipped towards 24700 from an intraday high of 24978. The bank’s index also witnessed some profit taking from an intraday high of 52577 and sliding to the 52000 mark. The rally in HDFC bank post result failed to provide support to the bank's index.
The selling in markets today can be attributed to the outflow of Indian equities from FII possibly towards China as they have cut down lending rates. The People’s Bank of China said it has cut the one-year loan prime rate (LPR) to 3.1 per cent, while the five-year LPR has been trimmed to 3.6 per cent. China's economic growth slowed in the third quarter as the country struggled to boost flagging growth. The gross domestic product (GDP) of China rose by 4.6 per cent in the three months to the end of September, according govt data.This was the second quarter in a row that China's official measure of economic growth has fallen below the 5 per cent target.
As china is slowing, the room for further monetary and fiscal stimulus is on the cards. Chinese market as per the market cap/GDP ratio is far undervalued as compared to India. China’s market cap to GDP was around 65 per cent at the start of FY25 while India was quoting above 135 per cent showing high valuation locally. Such high valuation and lower chance of RBI rate cuts and below-par corporate results along with geo-political tension have lead to selling in Indian equities from foreign institutional investors. FII have sold almost 80,000 crore of Indian equities till now in October and this figure is the highest since covid when they sold around Rs 61,972.95 crore during March 2020.
The selling in the market today is mostly broad-based. The larger NIFTY 500 index saw 425 shares declining with only 73 advanced. Excluding Auto which has been short-covering, most sectors closed on a negative note. NIFTY media slide the most, lost 2.8 per cent while NIFTY slid 1.48 per cent.
The long-term story of India is intact and after a corrective phase, Indian equities should regain. However, is difficult to tell when the market shall bottom out. A corrective phase is part and parcel of a bull market and it is a healthy sign for long-term investors. The larger index has corrected only 5-6 per cent and any correction between 10-15 per cent from the high can be counted as a healthy one. And for mutual fund investors, stay invested and continue your SIP every month for long-term investment outlook.
NIFTY: The index has resistance at 24940-960 range with the immediate psychological level at 25000 mark. The crucial resistance for NIFTY is pegged at 25200-230 range. The immediate support is seen at the 24700-680 range and if the level is breached one can expect selling momentum to extend tomorrow towards the 24600-550 range.
BANK NIFTY: The bank is likely to stay weak intraday below the 52050-52100 range with immediate support at 51650-700 levels. As most of the banks results were out, one can expect some liquidation in banks as they have been holding for a few days despite NIFTY slide. The intraday target for shorts can be 51800-700.
NIFTY MIDCAP Select Index: This has been the sharpest selling in the midcap index lead of mid-sized IT stocks along with polycab. The index has important support at the 12580-600 range intraday and below that it may experience further weakness. The intraday resistance is seen at the 12820-850 range which may attract sellers intraday. It is better to sell on a pullback towards the resistance zone.
The report is being prepared by Bitupan Majumdar, an independent SEBI registered research analyst with registration code INH30006962. Please consult your financial advisor before taking investment decision.
