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Market Commentary 04 June 2018
Markets likely to make optimistic start on firm global cues


Friday turned out to be a disappointing day of trade for Indian equity benchmarks, with frontline gauges ending the session with marginal losses, as better-than-expected Q4 GDP numbers failed to cheer Dalal Street. Indian economy grew at 7.7% during January-March quarter of financial year 2017-18 compared to 6.1% a year ago, driven by gains in manufacturing and consumer spending. However, the GDP growth for the entire fiscal of 2017-18 was at 6.7%, lower than 7.1% in 2016-17. Though, domestic gauges made a positive start as traders took some support with report that eight infrastructure industries recorded 4.7% growth in April helped by healthy performance in segments like coal, natural gas and cement. The growth rate of eight core sectors, which also include fertilisers and steel, was 2.6% in April 2017. Traders took some solace with Moody's Investors Service's statement that tax reforms are likely to expand revenue base in fast growing economies like India but they will be most effective when accompanied by lowering of fiscal deficit and effective management of expenditure. However, frontline gauges pared all of their initial gains to enter into red terrain, as sentiments turned pessimistic with a report that activity in India's manufacturing sector declined marginally in May on the back of weaker expansion in output, new order growth and employment. A buildup of inflationary pressures, amid persistent crude oil rally led to the input and output cost rising at the fastest pace since February, thereby impacting activity growth. The Nikkei India Manufacturing Purchasing Managers Index (PMI) fell from 51.6 in April to 51.2 in May. Sentiments also remained dampened on report that India's per capita income grew at a slower pace of 8.6% to Rs 1,12,835 during the last fiscal ended March 2018. The per capita net national income in 2016-17 stood at Rs 1,03,870, witnessing a growth of over 10.3% from the preceding fiscal ended March 2016 (at Rs 94,130). Finally, the BSE Sensex declined 95.12 points or 0.27% to 35,227.26, while the CNX Nifty was down by 39.95 points or 0.37% to 10,696.20.


Resuming northward journey, the US markets ended with notable gains on Friday after a day of halt, following an upbeat May jobs report that showed a modest gain in wages. The US economy added 223,000 jobs in May to push unemployment down to an 18-year low of 3.8% from 3.9% in April, signaling that a nine-year-old economic expansion still has plenty of steam despite being one of the oldest ever. Average hourly earnings rose 0.3% last month. Dow Industrial gained more than 200 points, while Nasdaq advanced more than 100 points to reach at its best closing level in well over two months, as easing fears political upheaval in Italy and trade wars also supported sentiment. Besides, gains in Europe also boost the rally in US markets, after populist parties the League and the 5 Star Movement struck a deal to form a coalition government on Thursday evening, ending months of political deadlock and averting new elections this summer. On the economic front, the Institute for Supply Management released a report showing growth in manufacturing activity accelerated by more than expected in the month of May. The ISM said its purchasing manager's index climbed to 58.7 in May from 57.3 in April, with a reading above 50 indicating growth in the manufacturing sector. The Dow Jones Industrial Average surged 219.37 points or 0.90 percent to 24635.21 and the S&P 500 increased 29.35 points or 1.08% to 2734.62 and the Nasdaq was up by 112.21 points or 1.51 percent to 7554.33.


Extending losses for second straight day, crude oil futures settled sharply lower on Friday as rising rig counts signal output expansion. Oil suffered its lowest finish since April, as an upbeat jobs report lifted the dollar and dented commodities. Besides, the possibility that OPEC and its allies may decide to boost output too dampened sentiments. According to data from energy services firm Baker Hughes, the number of oil rigs operating in the US increased by 2 to 861, its highest level since March 13, 2015, pointing to signs of an expansion in US output. The uptick in drilling activity emerges as the Energy Information Administration said Thursday US oil output rose 215,000 barrels per day to a record 10.47 million barrels per day in March. Benchmark crude oil futures for July delivery slipped $1.23 or 1.8 percent to settle at $65.81 a barrel on the New York Mercantile Exchange. August Brent crude fell 77 cents or 1 percent to settle at $76.79 a barrel on London's Intercontinental Exchange.


Exhibiting strength against the dollar for the third straight day, Indian rupee ended higher on Friday, on continued selling of the American currency by banks and exporters amid robust macroeconomic data. Indian economy grew at 7.7 percent during January-March quarter of financial year 2017-18 compared to 6.1 percent a year ago, driven by gains in manufacturing and consumer spending. However, the GDP growth for the entire fiscal of 2017-18 was at 6.7%, lower than 7.1 percent in 2016-17. Adding to the optimism, eight infrastructure industries recorded 4.7 percent growth in April helped by healthy performance in segments like coal, natural gas and cement. The growth rate of eight core sectors, which also include fertilisers and steel, was 2.6 percent in April 2017. Besides, a muted show by the greenback against other currencies overseas also supported the rupee uptrend. On the global front, euro edged higher on Friday and looked set to break a six-week losing streak, supported by a drop in Italian bond yields after a revived coalition deal between two anti-establishment parties pulled the country back from snap elections. Finally, the rupee ended at 67.06, 34 paise stronger from its previous close of 67.40 on Thursday.


The FIIs as per Friday'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 21916.41 crore against gross selling of Rs 22431.95 crore, while in the debt segment, the gross purchase was of Rs 646.22 crore with gross sales of Rs 575.39 crore. Besides, in the hybrid segment, the gross buying was of Rs 0.69 crore against gross selling of Rs 0.25 crore.


The US markets ended higher on Friday following the release of a report from the Labor Department showing stronger than expected job growth in the month of May. Asian markets are trading mostly in green in early deals, tracking gains seen on Wall Street after Friday's expectation-topping U.S. jobs report and shrugging off trade-related concerns. Indian equity benchmarks ended slightly lower on Friday as renewed trade war fears offset encouraging GDP data for the March quarter and news on the formation of a new government in Italy, the euro zone's third-largest economy. Today, the markets are likely to make optimistic start amid firm global cues. Traders will get some encouragement with Prime Minister Narendra Modi's statement that India's economy will sustain a growth of 7.5 to 8 per cent per year. He said, the Indian government has kept its economic growth forecast for the current fiscal unchanged at 7.5 per cent, buoyed by turnaround in manufacturing and pick up in investment. Traders will be eyeing services sector data for May slated to be released on June 5, while the Reserve Bank's rate decision will be announced on June 6. The RBI is expected to take a wait-and-watch approach despite the higher GDP growth figures released last week. However, there will be some concern with report that collections from the Goods and Services Tax in May fell to Rs 94,016 crore, from the Rs 1.03 lakh crore collected in April. Meanwhile, foreign investors pulled out a massive Rs 29,714 crore from the capital markets in May, making it the biggest outflow in 18 months, primarily due to a surge in global crude prices. There will be buzz in public sector banks on report that losses by state-run banks have almost entirely wiped out the $13-billion capital infusion by the government, and the situation is unlikely to improve in the current fiscal year.


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  • Infosys has extended its alliance with Microsoft to accelerate the digital transformation of enterprise clients. 
  • Bajaj Auto has registered a rise of 30% in total sales to 4,07,044 units in May 2018 against 3,13,756 units in May 2017. 
  • Eicher Motors' motorcycle division has reported 23% rise in sales at 74,697 units in May 2018 as compared to 60,696 motorcycles sold in May 2017. 
  • M&M will make an additional investment of Rs 500 crore at its Chakan plant in Maharashtra to expand electric vehicles portfolio.
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