Sops offered to auto, realty will be key for markets

Indian equity markets ended the week in red despite some gains on Friday. The short week due to the Ganesh Chaturthi holiday on Monday, started on a weak note due to poor GDP data released late over the previous weekend as well as rising trade war tension between US and China. Nifty 50 closed at 10,946 – down 0.7% while the Sensex closed at 36,981, down 0.9%. The hope of further government stimulus, a revival of US-China trade talks and withdrawal of the extradition bill by Hong Kong helped in boosting sentiments.

Buying interest continued in the broader markets with both the NSE Mid and Small-cap Indices outperforming Nifty. NSE Small-cap index closed flat while NSE Mid-cap index was down marginally (-0.3%) for the week.

On the sector front, metals gained the most (+3.0%), followed by auto (+1.3%). On the other hand, IT and Pharma were largely flat. Among the major losers were real estate (-4.8%), PSU banks (-3.8%), FMCG (-2.1%). Private banks and financial Services were down 1.0-1.5%, as well.

Foreign Institutional Investors (FII) remained net sellers throughout the week and sold equities worth Rs 5,273 crores. Foreign Institutional Investors (DII0, on the other hand, continue to be net buyers, having bought equities worth Rs 4462 crores during the week.

Global markets were stronger during the week after fresh talks between the US and China (both the countries would be meeting next month to negotiate trade tariffs) as well as the removal of Hong Kong extradition bill cheered markets.

On the domestic front, concerns of economic slowdown impacted sentiments with the Q1FY20 GDP growth at a 6-year low of 5%, subdued GST collection and weak Auto monthly sales volumes.

Continuous FII selling has been a major concern for the market. Government has been making a slew of announcements to drive growth, which has not really pulled sentiment yet, even though it augurs well from liquidity viewpoint.

Going forward, markets would be keenly awaiting further rounds of stimulus from the government, especially in the auto and real estate sectors. Some of the key data to be released next week would be July IIP, August CPI, and fortnightly Banking credit growth. Globally, the focus would shift from geopolitics to major central banks.

The ECB meeting is scheduled for September 12, while the US Federal Open Market Committee (FOMC) would meet on September 17-18. The market is expecting the ECB not only to cut interest rates but also introduce a stimulus package to boost the Eurozone.

Technically, Nifty formed a Bullish Pin Bar on a weekly scale which implies support based buying interest in the market at lower levels. It has started to form higher lows and supports are slightly shifting higher. Now Nifty has to continue to hold above 10,850 levels to extend its bounce towards 11,050- 11,100 levels while on the downside support could be seen at 10,850-10,780 zones

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