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Market Commentary 25 August 2016
Markets to get a cautious start of F&O series expiry session

 

Wednesday's session was characterized by extreme volatility as the frontline indices went through a rollercoaster ride amid lack of direction ahead of August F&O expiry and signals on key policy rates from US Federal Reserve Chair Janet Yellen at a meeting scheduled this week. However, investors' morale remained upbeat on account of study progress of Goods and Services Tax (GST), which will be implemented from April 1, 2017. Some support also came with rating agency Ind-Ra revising India's economic growth forecast to 7.8 percent for the ongoing fiscal on better monsoon. It has said the positive impact of monsoon on agriculture will support the overall GDP growth with its backward and forward linkages.  However, markets participants remained cautious after FIIs had turned net sellers in the last two days in both equities and derivatives for the first time this month. Meanwhile, mild selling witnessed in selected sugar counters on the report that sugar production in Maharashtra, which contributes a third of the country's sugar production, is likely to drop to 5.5 MT, the lowest in the past five years, due to drought and crop diversification across Marathwada and western parts of the state. On the global front, Asian markets ended mostly in red on Wednesday as strong US housing data overnight increased the chances of an interest rate increase in coming months, prompting some investors to take profits. Back home, the benchmark got off to an optimistic opening, shrugging the somber sentiments prevailing in Asian markets ahead of Federal Reserve chair Janet Yellen's speech later in the week. Thereafter, the broader markets failed to show any kind of fervor as they oscillated around the neutral line for most part of morning trades and drifted deeper into the red terrain in noon session. However, late short covering in blue-chip stocks and supportive leads from European markets ensured that local bourses go home with some gains. Finally, the BSE Sensex gained 69.73 points or 0.25% to 28059.94, while the CNX Nifty rose by 17.70 points or 0.21% to 8,650.30.

 

The US markets closed lower on Wednesday, led by healthcare and materials stocks, while oil prices tumbled on worries about oversupply. Oil prices tumbled, with US crude oil futures settling lower after an unexpected large build up in US crude oil stockpiles renewed worries about oversupply. Investors have mostly held off on big bets on Wall Street ahead of comments from Fed Chairwoman Janet Yellen at the central bank's retreat at Jackson Hole. Yellen's speech there will be closely watched for hints about US monetary policy and the path of interest rates. Earlier, a reading of existing home sales didn't do much to inspire buying, with stocks continuing to trade in a tight range on seasonally light summer volume. Sales of previously owned homes fell in July as tight inventory continued to weigh on the market and prices pushed higher. Existing-home sales declined 3.2% to a seasonally adjusted annual rate of 5.39 million. That was 1.6% lower than year ago. The July figures were lower than the 5.48 million pace forecast. Inventory was 5.8% lower than a year ago, the 14th month in a row of declines from year-earlier comparables. The Dow Jones Industrial Average lost 65.82 points or 0.35 percent to 18,481.48, Nasdaq was down 42.38 points or 0.81 percent to 5,217.70, while S&P 500 dropped 11.46 points or 0.52 percent to 2,175.44. 

 

Crude oil prices plunged Wednesday, once again unable to crack the $50 barrier on an unexpected increase in U.S. crude stocks that revived worries about the supply glut that has capped prices for the past two years. The US Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that US Commercial Crude inventories increased by 2.5 million barrels from the previous week. Gasoline inventories, already high for this time of year, were unchanged. Benchmark crude oil futures for October delivery slumped by $1.33 or 2.8 percent to close at $46.77 a barrel after trading in a range of $46.96 and $47.20 a barrel on the New York Mercantile Exchange. In London, Brent oil futures for October delivery declined by 91 cents or 1.8 percent to $49.05 barrel on the ICE.

 

Indian rupee ended weaker against dollar on Wednesday on account of sustained demand for dollar from banks and importers. The domestic currency looked weak from the very beginning as investors remained cautious after FIIs had turned net sellers in the last two days in both equities and derivatives for the first time this month. Besides, dollar strength against basket of major currencies overseas too hit the rupee sentiment. However, market participants got some comfort with study progress of Goods and Services Tax (GST), which will be implemented from April 1, 2017. The Gujarat Assembly passed the GST Constitution Amendment Bill on August 23 and became the sixth state to do so after Assam, Bihar, Jharkhand, Himachal Pradesh and Chhattisgarh. Passed by Parliament recently, the bill needs to be ratified by at least 15 state legislatures before the President can notify the GST Council which will decide the new tax rate and other issues. On the global front, dollar strengthened against other major currencies as strong U.S housing data overnight increased the chances of an interest rate increase in coming months. Finally the rupee ended at 67.11, weaker by 5 paise from its previous close of 67.06 on Tuesday.

 

The FIIs as per Wednesday's data were net buyers in equity and debt segments both. In equity segment, the gross buying was of Rs 3596.35 crore against gross sell of Rs 3590.10 crore, while in the debt segment, the gross purchase was of Rs 2688.24 crore with gross sales of Rs 1996.95 crore.

 

The US markets ended the lacklustre session of trade in red terrain on Wednesday on report from the National Association of Realtors showing a substantial decrease in existing home sales in the month of July. The Asian markets were exhibiting mixed trend as traders remained on sidelines ahead of a key meeting of the U.S. Federal Reserve at Jackson Hole, this week. The Indian markets managed a positive close in last session on the back of smart recovery in final hour of trade. Today, the start of the F&O series expiry day is likely to see a cautious start for the markets as the regional markets are trading mixed, while some volatility is expected in latter trade once traders starts settling and rolling out their final positions to the next series. Traders will get some encouragement with Commerce and Industry Minister Nirmala Sitharaman pitching for as much as 200 basis points, that is 2 per cent, interest rate cut by RBI to help the cash-starved MSME sector. Markets will get some support with the Union cabinet approving a revised India-Cyprus tax treaty that seeks to plug loopholes used by investors to avoid paying taxes in India. The country will get the right to tax capital gains from sale of shares on investments made by Cyprus-based companies after 1 April 2017. Traders will also take some relief with Delhi Assembly ratifying Goods and Service Tax (GST) Constitution Amendment Bill, becoming the third non-BJP-ruled state and overall the eighth to clear the proposed tax regime, billed as single biggest tax reform in decades. The power sector will keep buzzing after the Union Railway Ministry revised freight rates for coal, a commodity from which it earns at least 45% of its revenue. This will raise power generation costs for several plants. There will be some action in stocks related to tobacco products after Nirmala Sitharaman said that FDI in tobacco sector cannot be encouraged because of public health reasons and also it would be against India's commitment to the WHO.

 

Support and Resistance: NSE (Nifty) and BSE (Sensex)

 

Index

Previous close

Support

Resistance

NSE Nifty

8650.30

8627.12

8667.27

BSE Sensex

28,059.94

27977.08

28125.60

 

Nifty Top volumes

 

Stock

Volume

(in Lacs)

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

Idea Cellular 

143.95

98.35

97.27

99.17

State Bank of India

115.6

254.40

253.20

255.90

Tata Power 

103.58

76.45

74.58

77.53

ICICI Bank 

83.89

248.45

246.97

250.82

Coal India

76.65

333.95

332.13

336.23

  • Lupin's US subsidiary, Gavis Pharmaceuticals LLC, has received final approval for its Linezolid Tablets, 600 mg from the USFDA.
  • IndusInd Bank will use IBM's Cloud commerce solutions to transform customer engagements and enhance its cross-sell platforms, in line with the bank's strategy.
  • M&M's pre-owned car unit Mahindra First Choice is reportedly aiming to expand its dealership network to tap into the fast growing pre-owned car market as new car sales remain stagnant.
  • Idea Cellular has added 2.56 lakh new mobile subscribers in July, 2016. Following the addition, the company's total subscriber count stood at 17.64 crore with a market share of 22.65%.
  • Reliance Communications has launched content delivery network ‘Fast Edge' for faster delivery of web content to users.
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