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Market Commentary 01 February 2017
Markets to make a flat-to-cautious start ahead of budget


Indian equity benchmarks carried forward their southward journey for yet another session on Tuesday as participants kept their bets to a minimum ahead of the federal budget, while the risk sentiment was hit as Asian shares fell on worries over US President Donald Trump's immigration policy. The Union Budget 2017 will be a tightrope for Finance Minister Arun Jaitley to boost public spending and also keep deficit within limits. Local sentiments also got undermined by the Economic Survey 2016-17, tabled by chief economic adviser Arvind Subramanian, estimating economic growth to moderate to 6.5% in the current fiscal year ending March 2017, down from 7.6% reported in the previous fiscal. It also outlines three main downside risks to FY18 GDP growth forecast adding that demoetisation, rise in oil prices and global trade tensions will affect the growth forecast. The Economic Survey, however, sees India's GDP rebounding sharply in the range of 6.75-7.50 percent during the fiscal year ending March 2018. Painting a rosy picture on the agriculture sector, the survey sees farm sector to grow at a healthy rate of 4.1 percent in the current fiscal as against 1.2 percent growth achieved in 2015-16. Furthermore, market participants remained anxious with the CII - IBA Financial Conditions Index for Q4 (January-March) FY2016-17 recording a drop below the 50 mark owing to expectation of banks and financial institutions of deterioration in the overall financial conditions in the economy.   Meanwhile, banking stocks declined on the report that demonetisation is likely to push back recovery in banks' asset quality as the cash shortage had a ‘disruptive impact' on India's informal economy. Cash shortages caused by the demonetisation of large denomination currency notes have affected the income of many borrowers by holding back economic activity and reduced their short-term repayment abilities. Furthermore, IT stocks slipped as investors panicked over US President Donald Trump plans to keep his electoral promise of imposing tougher immigration rules on the H1B visa plans. Finally, the BSE Sensex declined 193.60 points or 0.70% to 27655.96, while the CNX Nifty was down by 71.45 points or 0.83% to 8,561.30.


The US markets closed mostly lower on Tuesday, as declines in industrial, technology and financials shares outweighed gains in health-care and utilities sectors. The main indexes still posted a third consecutive round of monthly gains. The selling pressure in early trade came amid signs that momentum following President Donald Trump's election victory in November was fading, and as a January gauge of consumer confidence retreated from its highest level in 15 years. Outside politics, the Fed kicked off its two-day meeting Tuesday and will announce its policy decision on Wednesday. On the economy front, consumer confidence edged back in January from lofty heights, on a slightly more sober assessment of future income in the wake of the election of President Donald Trump. The consumer confidence fell to a reading of 111.8 in January after hitting a 15-year high of 113.3 in December. Consumers' appraisal of the present improved, to a reading of 129.7 from 123.5, but the expectations index fell to 99.8 from 106.4. On the other hand, national home price gains maintained momentum in November, two months after retaking the high last seen at the height of the housing bubble. The S&P/CoreLogic Case-Shiller 20-city index rose 5.3% compared to a year ago for the three month period ending in November, an acceleration from the 5.1% increase notched in October. The Dow Jones Industrial Average dropped 107.04 points or 0.54 percent to 19,864.09, S&P 500 was down by 2.03 points or 0.09 percent to 2,278.87, while Nasdaq gained 1.08 points or 0.02 percent to 5,614.79.


Crude oil futures recovered and moved higher on Tuesday, as traders see early signs that a coordinated effort to trim nearly 1.8 million barrels-per-day from global markets in the first half of 2017 is on track. Traders downplayed a report that Libya's crude oil production rose sharply in January despite OPEC quotas. Libyan production is at the highest level in the last three years. Market is looking for signs the US supply glut has dwindled after significant stockpile in increases earlier in January. Benchmark crude oil futures for March delivery gained by $0.21 or 0.34 percent to $52.81 on the New York Mercantile Exchange. In London, Brent crude for March delivery ended up by $0.39 or 0.85 percent at $55.70 on the ICE.


Extending gains for the fifth straight session, Indian rupee ended three-week high against dollar on Tuesday, due to selling of greenback by banks and importers. Local currency got some support with Union Power Minister Piyush Goyal's statement that India is the fastest growing major economy and it will remain the same in the coming years. However, massive losses of domestic equity markets capped the gains in domestic currency. Besides, traders remained on sidelines ahead of Union Budget to be announced tomorrow. On the global front, dollar remained weaker against a basket of the other major currencies on Tuesday as concerns over the destabilizing impact of President Donald Trump's immigration policy continued to generate risk aversion. Finally, the rupee ended at 67.86, 9 paise stronger from its previous close of 67.95 on Monday.


The FIIs as per Tuesday's data were net buyers in equity and debt segments both. In equity segment, the gross buying was of Rs 3336.30 crore against gross selling of Rs 2600.98 crore, while in the debt segment, the gross purchase was of Rs 540.83 crore with gross sales of Rs 260.14 crore.


The US markets made a mixed closing in last session, while the tech heavy Nasdaq ended in green, Dow and S&P extended their decline, though were well off their worst levels of the day. The weakness came following disappointing earnings news from some big name companies. The Asian markets have made a mixed start too; some indices in the region were getting support with report that China's official factory gauge started the new year on a robust note. China notched a 6.7 percent full-year expansion last year, with growth quickening to 6.8 percent in the last quarter. The Indian markets reacting negatively to economic survey's cut in GDP growth projections ended with lower by over half a percent in last session. Today, the start of the big day of budget is likely to remain cautious and the major cues will be coming from budget only, though Economic Survey has hinted at demonetisation ‘windfall'. It also said that the rupee has strengthened by 8.3-10.4% in the last two years and suggested free trade pacts with the UK and European Union, estimating the gains at 1.5 million new jobs and $3 billion of extra exports per year, as exports can only rev up the GDP growth of over 8%. Traders will also be getting some support with Central Statistics Office (CSO) revising up India GDP growth to 7.9 percent in 2015-16, from 7.6 percent estimated earlier. Though, there will be some cautiousness too with fiscal deficit in the first nine months of 2016-17 touching 93.9 per cent of the Budget target against 87.9 per cent for the same period a year ago. Also, the Reserve Bank of India (RBI) has said that non-food bank credit showed a lower growth of four per cent in December 2016, compared with an increase of 9.3 per cent in December 2015. The IT stocks will continue to remain under pressure, as  a legislation has been introduced in the US House of Representatives which among other things calls for more than doubling the minimum salary of H-1B visa holders to $130,000, making it difficult for firms to use the programme to replace American employees with foreign workers. There will be lots of important earnings announcements too to keep the markets buzzing.



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  • Wipro has entered into partnership with PATH to improve health outcomes in developing countries. 
  • Mahindra & Mahindra has introduced a stylish new look for its compact SUV KUV100, as it completes one year on Indian roads.
  • Bharti Airtel has added 25.02 lakh users in December, 2016.
  • Oil & Natural Gas Corporation has reported around three fold rise in its net profit of Rs 4352.33 crore for the quarter ended December 31, 2016 as compared to  Rs 1465.88 crore for the same quarter in the previous year.
  • Idea Cellular has added 28.39 lakh new mobile subscribers in December, 2016.
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