Markets in consolidative mood

Indian equity markets snapped its two-week gains with both Nifty50 and Sensex down -2.8% and -2.7% to close at 11,334 and 38,357, respectively. The broader market also witnessed weakness with Nifty Midcap100 and Nifty Smallcap100 down -2.5% and -3.2%, respectively.

All the sectors ended in red with Banks (-6.2%), Financials (-4.8%) and Realty (-5.6%) being the biggest losers after the Supreme Court passed an interim order saying that the accounts not declared as NPA as on 31 August shall not be declared as NPAs till further notice.

It further adjourned the hearing in the loan moratorium case till Sept.10. Pharma, Metals, Energy, and Infra on the other hand lost around 2.5%-3.5%. FIIs turned net sellers after being buyers for the last four weeks, selling equities worth Rs 3,800 crore while DIIs remained net sellers for the ninth straight week to the tune of Rs 1,088 crore.

The global cues were mixed as the markets reacted to a slew of economic data releases across economies. While the factory output data came in strong, weak US services PMI data along with elevated jobless claims dampened sentiments.

On the domestic front too, India’s factory activity grew for the first time in five months but the sentiments turned negative after the Services PMI data contracted for the sixth successive month in August and the June quarter GDP data came in weaker than expected. Further, the implementation of the new margin system by SEBI also led to the selling pressure.

However, the SEBI has now waived off the penalty for short margining in all the segments till September 15. On the positive side, auto numbers for the month of August were encouraging while the SC also finally gave the verdict in favour of staggered payment of AGR dues by the Telecos.

Going ahead, the market is likely to remain in a consolidative mode in the near term with more of sector/stock specific actions and the intermittent profit booking cannot be ruled out. The market would now be looking forward to positive signs of economic recovery and would track the development around the US stimulus announcement.

The two key events to watch out would be ECB monetary policy and BoC rate decision which would provide direction to the market. Investors would also cautiously watch the developments with respect to India-China border issues as the two sides look to resolve the current situation through dialogue.

Technically, Nifty formed a Bearish Engulfing pattern on a weekly scale which has a Bearish implication if follow up selling happens. Nifty is facing multiple hurdles at 11,450-11,550 zones and until it remains below the same weakness could be seen towards 11,200-11,100 levels.

The Spike in VIX after the dips of the last three trading sessions also indicates that short term volatile swing could be back again in the market for the next few trading sessions.

(The writer is the head of Retail Research, MOFSL)