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NSE Intra-day chart (04 June 2019)
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Market Commentary 06 June 2019
Markets to make negative start; RBI monetary policy outcome eyed


Tuesday turned out to be a volatile day for Indian equity indices, with both larger peers, Sensex and Nifty, closing off their lifetime highs. After a negative start, markets remained lackluster throughout the day, with industry chamber, Confederation of Indian Industry's (CII) statement that the US decision to withdraw export incentives from India has been taken in a haste and would hurt the domestic exporters. CII President Vikram Kirloskar expressed hope that both the US and India would discuss the matter and find an amicable solution to this issue. Adding more anxiety among market participants, the Reserve Bank of India said that over 6,800 cases of bank fraud involving an unprecedented Rs 71,500 crore have been reported in 2018-19. In the last 11 fiscal years, a total of 53,334 cases of fraud were reported by banks involving a massive amount of Rs 2.05 lakh crore. Weak trade persisted on the street, also with a private report stating that the pre-monsoon rainfall in the country was the second lowest in 65 years. The three-month pre-monsoon season March, April and May ended with a rainfall deficiency of 25%. As per the report, all the four meteorological divisions - Northwest India, Central India, East-Northeast India and South Peninsula - recorded deficit rainfall of 30%, 18%, 14% and 47%, respectively. Traders failed to take any sense of relief with IHS Markit's latest report that India is likely to overtake the UK to become the world's fifth largest economy this year and added that by 2025, Indian GDP is also forecast to surpass Japan, which will make India the second-largest economy in the Asia-Pacific region. Investors also overlooked Finance Secretary Subhash Chandra Garg's statement that declining global oil prices, stable rupee and falling interest rate are sure signs of high growth in coming months. Finally, the BSE Sensex slipped 184.08 points or 0.46% to 40,083.54, while the CNX Nifty was down by 66.90 points or 0.55% to 12,021.65.


The US markets ended higher with gains over half percent on Wednesday on optimism about a potential interest rate cut after Federal Reserve Chairman Jerome Powell's pledged to sustain the US economic expansion. Citing uncertainty surrounding trade negotiations and other matters, Powell said that the central bank will act as appropriate to support the economy. Powell's comments were widely seen as an indication the Fed is prepared to discuss lowering interest rates if escalating global trade disputes weigh down economic growth. Powell's comments imply that the Fed might look to lower benchmark interest rates, which stand at a range between 2.25% to 2.50%, which would reduce borrowing costs for corporations and has sparked fresh enthusiasm for buying equities. Besides, indicating an unexpected acceleration in the pace of US service sector growth in the month of May, the Institute for Supply Management (ISM) released a report showing an increase by its non-manufacturing index. The ISM said its non-manufacturing index climbed to 56.9 in May after falling to 55.5 in April, with a reading above 50 indicating growth in service sector activity. The increase by the non-manufacturing index came as a surprise to participants, who had expected the index to come in unchanged from the previous month. Dow Jones Industrial Average surged 207.39 points or 0.82 percent to 25539.57, Nasdaq gained 48.36 points or 0.64 percent to 7575.48 and S&P 500 was up by 22.88 points or 0.82 percent to 2826.15.


Crude oil futures ended sharply lower on Wednesday as domestic data revealed a weekly crude supply climb of almost 7 million barrels-the largest in five weeks-to their highest level in nearly two years. The Energy Information Administration (EIA) reported that US crude supplies rose by 6.8 million barrels for the week ended May 31. That was the largest weekly increase since the 9.9 million-barrel rise report for the week ended April 26, which was the biggest of this year so far. S&P Global Platts expected a crude-supply fall of 1.7 million barrels for crude stocks, on average, while the American Petroleum Institute on Tuesday reported a climb of nearly 3.6 million barrels. Benchmark crude oil futures for July plunged $1.80 or 3.4 percent to settle at $51.68 a barrel on the New York Mercantile Exchange. August Brent dropped $1.34 or 2.2 percent to settle at $60.63 a barrel on London's Intercontinental Exchange.


Indian rupee ended unchanged compared to its previous close as investors remained cautious ahead of RBI's monetary policy decision. Some concern also came with a private report stating that the pre-monsoon rainfall in the country was the second lowest in 65 years. The three-month pre-monsoon season March, April and May ended with a rainfall deficiency of 25%. As per the report, all the four meteorological divisions - Northwest India, Central India, East-Northeast India and South Peninsula - recorded deficit rainfall of 30%, 18%, 14% and 47%, respectively. The weak trade in the local equity market also adversely impacted local forex trade. On the global front, dollar struggled to shake off a harsh overnight session, slipping to a five-month low against the yen on Tuesday, hurt by a sharp slide in US Treasury yields thanks to rising bets for a near-term rate cut by the Federal Reserve. Finally, the rupee ended unchanged from its previous close of 69.26 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 7763.83 crore against gross selling of Rs 5412.75 crore, while in the debt segment, the gross purchase was of Rs 3311.35 crore with gross sales of Rs 2588.31 crore. Besides, in the hybrid segment, the gross buying was of Rs 2.52 crore against gross selling of Rs 2.73 crore.


The US markets ended higher on Wednesday as investors further embraced the possibility that the Federal Reserve might cut interest rates to boost the economy. Asian markets are trading mixed on Thursday as the US and Mexico failed to reach a deal to avert proposed tariffs and investors weighed up the latest signs of fragility in the global economy. Indian markets ended lower on Tuesday, with cut of around half a percent, as traders booked profits after benchmarks hit new record highs. Markets remained closed on Wednesday on account of Ramzan. Today, the markets are likely to start in red territory amid mixed cues from Asian peers over concerns of escalating trade disputes. Investors will also be cautious ahead of the outcome of second Reserve Bank of India (RBI) Monetary Policy Committee meeting. The RBI is widely expected to reduce the repo rate by 25 basis points (bps), a third in a row. There will be cautiousness with report that the India's services sector activity increased at the slowest pace in a year in May, as disruptions arising from the elections in the earlier part of the month hampered growth of new work intakes. The seasonally adjusted Nikkei India Services Business Activity Index fell to 50.2 in May, from 51.0 in April, pointing to the slowest growth rate in the current 12-month stretch of expansion. Traders will also be concerned about the India Meteorological Department's statement that the onset of monsoon is likely to be delayed by a week and it is now expected to arrive only by June 8. The normal onset date for monsoon over Kerala is June 1 which also marks the official commencement of the four-month-long rainfall season. There may be negative reaction on the National Council of Applied Economic Research's (NCAER) report that business confidence among Indian companies fell by 9.1% in the fourth quarter of the 2018-19 fiscal. However, traders may get some support with the Department for Promotion of Industry and Internal Trade's (DPIIT) statement that foreign direct investment in services sector grew 36.5% to $9.15 billion in 2018-19. Increasing FDI inflows in services sector is vital as it contributes over 60 per cent to the gross domestic product. Meanwhile, the World Bank has retained its forecast of India's growth rate at 7.5% for the current financial year. In its Global Economic Prospects report, the World Bank also said growth rate is expected to remain the same for the next two fiscals. There will be some reaction in steel industry stocks with credit rating agency ICRA's report that while the performance of domestic steelmakers is likely to be lower in the first quarter of the current financial year as compared the previous year due to several headwinds, the construction sector will be at the forefront of demand recovery in the second half.


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