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Market Commentary 25 January 2016
Markets to get a strong start of the F&O expiry week

Indian equity indices staged a blockbuster performance on the last day of the week by vehemently rallying close to a two percentage points in the session and recaptured their important psychological levels. Indian markets posted their biggest single-day percentage gain since October, as hints of more stimulus measures from the European Central Bank lifted global markets, but still marked a third weekly fall. Global markets sentiments improved after oil prices rose 5 per cent on Friday. Although higher crude prices are not good for India's current account balance, they are helping shore up risk sentiment in global assets. On the domestic front, sentiment got a boost after Finance Minister Arun Jaitley said India is gradually transforming most of its taxation laws for a greater degree of stability and predictability, stressing that the proposed Goods and Services Tax (GST) is a major step in this direction. The net impact of the GST, once it is put into force, is that there will be a seamless transfer of goods and services across the country. Some support also came with a private report that India's GDP growth rate is likely to accelerate gradually and inflation is expected to remain below 5 per cent over the next two years. Furthermore, adding to the optimism United Nations world economy report said that the India will be the world's fastest growing large economy at 7.3 per cent in 2016, improving further to 7.5 per cent in the following year. Investors overlooked the report that that RBI Governor Raghuram Rajan shot down Niti Aayog chief Arvind Panagariya's suggestion to raise the central bank's inflation target, while pointing out that the country's macroeconomic fundamentals were stable. He said the current global market turbulence may owe much to central banks persisting with stimulus programmes for too long. On the global front, Asian markets ended higher after the ECB signaled stimulus hopes. Back home, the benchmarks got off to a positive start in the morning trade as investors were largely influenced by the supportive leads from Asian markets. Thereafter, the frontline indices slowly but steadily started gathering more steam and surged by around one and half a percent by late morning trades. The bourses further capitalized on the momentum and spurted in afternoon trades on the back of broad based bottom fishing in undervalued stocks. Finally, the BSE Sensex surged by 473.45 points or 1.98% to 24435.66, while the CNX Nifty gained 145.65 points or 2% to 7,422.45.


The US markets turned jubilant on Friday and ended sharply higher, reflecting a return of risk appetite following the recent weakness for the markets. The day's gains took the indices in green for the week too for the first time in 2016. Traders drew some comfort with strength in the overseas markets, as stocks around the world moved sharply higher and also on optimism about further stimulus from the European Central Bank after ECB President Mario Draghi said that the bank would review and possibly reconsider its monetary policy stance at the next meeting in early March. On economic front, the National Association of Realtors (NAR) reported that existing home sales rebounded strongly in December after seeing a steep drop in the previous month. NAR said existing home sales jumped 14.7 percent to an annual rate of 5.46 million in December from a rate of 4.76 million in November. Economists had expected sales to climb to a rate of 5.20 million. However, in a separate report the Conference Board showed a modest decrease by its index of leading economic indicators in December. The Dow Jones Industrial Average surged by 210.83 points or 1.33 percent to 16,093.51, the Nasdaq gained 119.12 points or 2.66 percent to 4,591.18 and the S&P 500 ended higher by 37.91 points or 2 percent to 1,906.90.


Crude oil futures surged posting strongest session of 2016 on Friday, trimming steep recent losses as calm returned to global markets. Prices gained mainly on bargain hunting and renewed confidence that central banks will prop up troubled economies. Also, there was market-moving comments from the head of Saudi Arabia's state-owned oil company that global oil prices may have hit a bottom. Investors continued to digest comments from Khalid-al-Falih on the increasing likelihood of further spikes in crude prices before OPEC convenes next at its semi-annual meeting in June. Benchmark crude oil futures for March delivery surged by $2.53 or 8.58 percent to $32.19 a barrel after trading in a range of $29.54 and $31.83 a barrel on the New York Mercantile Exchange. In London, Brent crude for March delivery closed at $32.05, up $2.80 or 9.57 percent on the ICE.


Snapping its two-days losing streak, Indian rupee bounced back against dollar on Friday on heavy dollar selling by banks and exporters, amid hopes that a rebound in crude oil prices globally may halt outflows from emerging markets (EMs). The domestic currency looked strong from the very beginning and was supported by the strong recovery in the local equity market. Sentiments got a boost with RBI Governor Raghuram Rajan stating that economic reforms in India are in right direction. Some support also came with a private report that India's GDP growth rate is likely to accelerate gradually and inflation is expected to remain below 5 per cent over the next two years. On the global front, the dollar was firm against a basket of currencies on Friday, as rising expectations of monetary easing by central banks in Europe offset chances of more rate hikes from the Federal Reserve. Finally, the rupee ended at 67.63, 40 paise stronger from its previous close of 68.03 on Thursday.


The FIIs as per Friday's data were net sellers in equity and in debt segments both. In equity segment, the gross buying was of Rs 4042.86 crore against gross selling of Rs 5663.73 crore, while in the debt segment, the gross purchase was of Rs 637.11 crore with gross sales of Rs 803.25 crore.     


The US markets ended higher in last session on increased risk appetite and buying interest, along with rise in crude prices. All the Asian markets have made a jubilant start, while the Japanese market has taken the lead, the Chinese shares too opened higher after first weekly advance in 2016, as bets central banks will come to the rescue of turbulent financial markets fuelled a rebound in global stocks. The Indian markets went for a big rally in last session on supportive global cues, today the start of the holiday truncated F&O expiry week is likely to be a gap-up one and the markets will extend their rally mood. Traders apart from the solid start of the regional peers will also be getting some encouragement with global rating agency Moody's statement that India's credit profile will be unaffected by a small slippage in fiscal deficit target, as it expects the government to continue fiscal consolidation and target lower deficits every year despite headwinds from global slowdown. Also, Finance Minister Arun Jaitley urging private sector to give up caution and make investments, has said that it has become absolutely imperative to add to the credibility of the Indian economy, with the world looking up to the country as a bright spot amid global headwinds. Meanwhile, industry body Assocham has said that the Indian economy is expected to improve in six months but private sector investments will be a matter for concern due to sluggish capacity utilisation and pressure on corporate earnings. Infra stocks are likely to see some action, as the Finance Minister has said that India is taking steps to address problems in the infrastructure sector and multiple institutions are required to meet the funding requirements in this space. Also there will be lots of result announcements to keep the markets in action.


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  • Mahindra & Mahindra, a part of the US 16.9 billion Mahindra Group, has launched its mHawk new 1.99 litre diesel engine.
  • Larsen & Toubro in consortium with Sojitz Corp, Japan has won a major order worth Rs 1213 crore from the Dedicated Freight Corridor Corporation of India.
  • ONGC's overseas arm ONGC Videsh has signed a memorandum of understanding with the Republic of Equatorial Guinea to cooperate in the hydrocarbon sector in the African country.
  • Idea Cellular has reported 3.42% fall in its net profit at Rs 642.65 crore for the quarter ended December 31, 2015 as compared to Rs 665.44 crore for the same quarter in the previous year.
  • Wipro is building the underlying software for electronics that go into connected cars for 3 out of 4 global manufacturers, as it looks at shifting from traditional services to value-added technology works.
News Analysis