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Market Commentary 26 October 2018
Markets to make negative start amid mixed Asian cues


October F&O expiry day turned-out to be a dismal day of trade for Indian equity benchmarks, with frontline gauges ending with a cut of one percent, breaching their crucial 33,700 (Sensex) and 10,150 (Nifty) levels. Markets started the session on pessimistic note as traders remained cautious with private report stating that Indian financial markets' liquidity position has worsened with cash deficit widening to about Rs 1.4 lakh crore this week compared with a small surplus in first week of October. Sentiments also remain dampened with a report that the latest government data shows that during the first six months of the financial year, trade deficit in oil already touched $46.6 billion, up 67% from 27.9 billion during the same period in 2017-18. Anxiety also spread among the traders, after the Income Tax Department (ITD) launched multiple raids at over 100 locations in Tamil Nadu and Andhra Pradesh as part of a tax evasion probe against mining and mineral export companies. In second half of the trade, markets showed some recovery but it was not enough to bring markets back in green terrain. Domestic sentiments got hit with a private report stating that exchange rate movements increase the vulnerability of firms from emerging market economies, including India, which have used the proceeds of dollar bond to fund financial assets. Traders failed to take any sense of relief with Economic Affairs Secretary Subhash Chandra Garg's statement that the non-banking financial companies' (NBFCs) liquidity, rupee fall are temporary problems. He also noted that the government is conscious of liquidity problem but is not worried because these are temporary and would more look at taking steps to resolve these problems. Market participants shrugged off private report that corporate India's business optimism for the October-December quarter improved marginally on expectations of higher festive season demand, implementation of the 7th Pay Commission awards and increase in minimum support price (MSP) of Kharif crops. Finally, the BSE Sensex fell 343.87 points or 1.01% to 33,690.09, while the CNX Nifty was down by 99.85 points or 0.98% to 10,124.90.


Regaining most of the ground lost in the previous session, the US markets staged remarkable comeback on Thursday as some encouraging economic data coupled with strong results from major companies including Microsoft and Visa boosted the market sentiments. The Commerce Department data showed that an unexpected increase in durable goods orders in the month of September. The report said durable goods orders climbed by 0.8% in September after surging up by 4.6% in August. Street had expected orders to drop by 0.9%. The unexpected increase in durable goods orders was largely due to a jump in orders for transportation equipment, which shot up by 1.9% in September after spiking by 13.2% in August. Excluding orders for transportation equipment, durable goods orders inched up by just 0.1% in September after rising by 0.3% in August. Street had expected a 0.3% increase. A separate report from the Labor Department showed a modest rebound in initial jobless claims in the week ended October 20. The Labor Department said initial jobless claims crept up to 215,000, an increase of 5,000 from the previous week's unrevised level of 210,000. Street had expected jobless claims to inch up to 214,000. Meanwhile, the National Association of Realtors (NAR) also released a report showing an unexpected rebound in pending home sales in September. NAR said its pending home sales index climbed by 0.5% to 104.6 in September after tumbling by 1.9% to a revised 104.1 in August. The rebound came as a surprise to street, who had been expecting pending home sales to edge down by 0.1%. A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. Dow Jones Industrial Average surged 401.13 points or 1.63 percent to 24984.55, Nasdaq gained 209.93 points or 2.95 percent to 7318.34 and S&P 500 was up by 49.47 points or 1.86 percent to 2705.57.


Extending previous session gains, crude oil futures ended higher on Thursday on the Organization of the Petroleum Exporting Countries' (OPEC's) signal that it might cut oil production again. Besides, a rebound in equity markets signaled a momentary return to a risk-on sentiment. As per the reports, Saudi OPEC governor Adeeb Al-Aama said the oil market could shift into oversupply in the last quarter of the year and that OPEC may have to return to oil production cuts. Benchmark crude oil futures for December gained 51 cents or 0.8 percent to settle at $67.33 a barrel on the New York Mercantile Exchange. December Brent crude was up by 72 cents or nearly 1 percent to settle at $76.89 a barrel on London's Intercontinental Exchanged.


Indian rupee pared most of its early losses but still ended weaker against the American currency on Thursday, due to dollar demand from banks and importers. Sentiments remained down-beat with a private report stating that exchange rate movements increase the vulnerability of firms from emerging market economies, including India, which have used the proceeds of dollar bond to fund financial assets. Besides, heavy losses in domestic equity markets also weighed on the sentiments of the local currency. However, the dollar's weakness against some currencies overseas and easing crude oil prices, capped rupee's losses. On the global front, US dollar slipped as the euro strengthened slightly early Thursday, as investors were awaiting the European Central Bank's policy update. Finally, the rupee ended at 73.27, 11 paise weaker from its previous close of 73.16 on Wednesday.


The FIIs as per Thursday'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 4844.40 crore against gross selling of Rs 6681.41 crore, while in the debt segment, the gross purchase was of Rs 3198.26 crore with gross sales of Rs 1022.81 crore. Besides, in the hybrid segment, the gross buying was of Rs 0.82 crore against gross selling of Rs 1.88 crore.


The US markets recovered from a tumble in the previous session and ended higher on Thursday on strong results from major companies including Microsoft and Visa. Asian markets were trading mixed on Friday as trade tensions and geopolitical worries kept investors from tracking a rebound on Wall Street, with observers warning of further volatility to come. Indian markets declined on Thursday, with Nifty closing the last session of October F&O series on a negative note, while Sensex settled with cut of a percent, following overnight losses at the Wall Street coupled with fresh weakness in the rupee. Today, the markets are likely to make pessimistic start amid mixed Asian cues. Traders will be concerned with the Controller General of Accounts' (CGA) data showing that the fiscal deficit of the Central government has widened in the first half of 2018-19 to 95.3% of the Budget Estimate (BE), mainly on account of slow growth in revenue collections. The deficit was at 91.3% of BE at September-end of the last financial year. In actual terms, the fiscal deficit or gap between the total expenditure and receipts was Rs 5.94 lakh crore during April-September this fiscal. Traders may take note of India ratings' report that the rupee may average at 69.79 to the dollar in the second half, down 8.3% from the first half if the monetary authority props it up by mobilising at least $30 billion from NRIs as it has done in 2013. It added that the rupee is the worst-performing emerging market currency losing over 15 percent year-to-date. Besides, a private report stated that the ongoing liquidity crisis in NBFCs has rattled realty sector as this could hit fund inflows to developers as well as home buyers, and lead to slowdown in housing demand-supply. However, some support may come later in the day with Commerce Minister Suresh Prabhu's statement that the government will soon come out with a new agri export policy which would have provisions for setting up agro specific zones to boost outbound shipments. There will be lots of important earnings announcements too, to keep the markets in action.


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