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Market Commentary 12 May 2016
Markets to continue weak trend with a soft start


Indian benchmark indices snapped two days winning streak and ended lower on Wednesday, on concerns that the government may amend tax treaties with countries, including Singapore, after it agreed to tax capital gains on foreign investments from Mauritius. The tax, which will be effective April 2017, would be at 50 per cent of the domestic rate for two years, and at the full rate thereafter, the government had said on Tuesday. According to reports, Mauritius accounted for 34% of foreign direct investments in India between 2000 and 2015.  Besides, weak trend in Asian and European stocks coupled with Indian depreciation in rupee value also weighed on the sentiment. However, market participants got some comfort with the report that India's real agriculture Gross value added (GVA) growth is projected to rise 1.1 per cent in 2015-16, despite below-normal monsoon last year. According to the report, the ongoing diversification in the agriculture sector has reduced volatility in agriculture output and farm incomes.  Some support also came with Skymet's report, stating monsoon would reach Kerala earlier than its due date on June 1. The agency said that the southwest monsoon will arrive over the Andaman and Nicobar Islands between May 18 and 20. It is likely to reach Kerala between May 28 and 30. Thereafter, it will cover other parts of the country. Present weather conditions are indicating a promising beginning of monsoon 2016, which is likely to usher in with a bang. On the global front, Asian markets made mixed closing on Wednesday as investors shrugged off an overnight rally in global stocks, European bourses also snapped previous rally and turned lower. Back home, the benchmark got off to a weak start as the indices breached the psychological 7,800 and 25,450 levels in the early moments of trade since investors largely remained influenced by the pessimistic sentiments prevailing in Asian markets. However, the key gauges got solid support around the intraday low levels, as they convalesced from thereon. The indices tried hard to move back into the positive territory and even got there but only for a brief period as investors took the opportunity to cash in on the bounce back. Finally, the BSE Sensex declined by 175.51 points or 0.68% to 25597.02, while the CNX Nifty dropped 38.95 points or 0.49% to 7,848.85.


The US market closed lower on Wednesday, erasing nearly all of the sizable gains from the previous day's session, as disappointing earnings and a slump among retailers led to disquiet among investors. On the economy front, the US government ran a budget surplus of $106.4 billion in April, down from a surplus of $156.7 in the same month in 2015. Most of the decline of the surplus is due to timing quirks because May 1 was a Sunday and some payments were shifted into April. But even without these technical issues, the surplus would have been about 6% lower year-on-year. After narrowing for four straight years, the deficit for the current fiscal year looks set to see an increase of red ink. The Congressional Budget Office is projecting a $534 billion deficit for the current fiscal year, about $100 billion greater than fiscal 2015's deficit. The Dow Jones Industrial Average was down by 217.23 points or 1.21 percent to 17,711.12, Nasdaq dropped by 49.19 points or 1.02 percent to 4,760.69, while S&P 500 lost 19.93 points or 0.96 percent to 2,064.46. 


Crude oil futures witnessed a strong rally on Wednesday, soaring to their six months peak, after the US Energy Information Administration (EIA) said that inventories witnessed an unexpected draw. EIA said in its Weekly Petroleum Status Report that US commercial crude oil inventories decreased by 3.4 million barrels for the week ending on May 6 from the previous week. The draw represented the first decrease in U.S. crude inventories in six weeks. Though, at 540.0 million barrels, US crude oil inventories are at historically high levels for this time of year. US production fell by 23,000 to 8.802 million barrels per day touching down to fresh 18-month lows. Benchmark crude oil futures for June delivery surged by $1.51 or 3.38 percent to $46.17 a barrel after trading in a range of $43.97 and $46.34 a barrel on the New York Mercantile Exchange. In London, Brent crude for June delivery closed at $47.54, higher by $2.02 or 4.44 percent on the ICE.


Indian rupee snapped its two-day's depreciating streak and ended stronger against dollar on Wednesday ahead of the Consumer Price Index (CPI) inflation and index of industrial production (IIP) data due to be scheduled on Thursday. Besides, incremental selling of greenback by banks and exporters and dollar's weakness against the basket of major currencies overseas too supported rupee. The domestic currency recouped all its early losses to end stronger. However, negative local equities capped the gains in rupee. On the global front, dollar was sharply lower against the yen on Wednesday, hurt by profit-taking after the greenback's recent strength. Finally, the rupee ended at 66.56, 11 paise stronger from its previous close at 66.67 on Tuesday.


The FIIs as per Wednesday's data were net buyers in equity segment, while they were net sellers in debt segment. In equity, the gross buying was of Rs 3859.32 crore against gross selling of Rs 3475.91 crore, while in the debt segment, the gross purchase was of Rs 742.15 crore with gross sales of Rs 1142.44 crore.            


The US markets suffered sharp slump in last session with the major averages largely offsetting previous sessions' strong gains. Traders cashed in on gains, looking ahead to the release of closely watched reports on retail sales and producer prices later in the week. The Asian markets have made mostly a lower start tailing the US clues, with some indices losing over half a percent in early trade on some disappointing company earnings from Japan to the US. The rebound in yen has weakened the Japanese market. The Indian markets once again showed a volatile trade and despite coming off the early slump, ended lower by over half a percent in last session. Today, the start is likely to remain somber as the global cues too are subdued. There will be buzz in the markets with Rajya Sabha clearing the bankruptcy bill, after it was passed by Lok Sabha last week. The bill is expected to further enhance the ease of doing business in the country. Traders will be getting some support with Finance Ministry's statement amid concerns on how markets will react to the decision taken by India to tax capital gains from Mauritius that India will continue to attract investments because of the inherent strength and the return it offers to investors.  Meanwhile, the ministry has also said that Ministry GAAR provisions, which are to take effect from April next year, will override the DTAA provisions in case they are abused. Also, the news of monsoon arriving on time will keep playing its role and support the markets. The PSU oil marketing companies may come under pressure as the global crude prices surged on unexpected fall in US inventory. There will be lots of result reactions to keep the markets buzzing through the day.   


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  • Wipro has entered into inked pact with Etiya, the leading Independent Software Vendor that provides services to transform the communications and digital Service providers businesses.
  • Yes Bank, India's 5th largest private sector bank, is planning to raise around Rs 16,500 crore through issue of debt securities as well as equity capital.
  • Kotak Mahindra Bank's arm Kotak Mahindra Prime will raise Rs 50 crore by issuing debentures, on a private placement basis.
  • Bharti Airtelhas launched Connexion, direct private connectivity to cloud, and announced its collaboration with Microsoft Corporation for Microsoft Azure ExpressRoute.
  • ZEEL has posted a rise of 18.90% on consolidated basis in its net profit at Rs 207.18 crore for the quarter ended March 31, 2016 as compared to Rs 174.25 crore for the same quarter in the previous year.
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