Watch for global cues, earnings

Indian equity markets continued their decline last week with selling seen across the board. The key benchmarks declined for the fourth straight week witnessing huge volatility.

However, on the last day of the week, markets bounced back, to close just below 11,000-mark. Market hoped that the government may roll back surcharge on the super-rich, which has been impacting foreign investors.

The Nifty 50 touched five-month low, down 2.5% on a weekly basis closing at 10,997, while the Sensex closed at 37,118, down 2.0% for the week. The selling pressure was more in broader markets with both the NSE mid-cap and small-cap indices falling by 2.8% and 4.7% respectively.

On the sector front, all the sectors closed in red except IT which closed in green (+0.5%), benefitting from the depreciating rupee. Media (-12.3%), Metals (-8.7%) and PSU Banks (-7.2%) fell the most. Foreign institutional investors (FIIs) continued their selling spree and sold equities worth Rs 6,790 crores during the week, while DIIs more than made up for them, buying equities worth Rs 8,285 crores. For the month of July, FIIs sold more than Rs 16,800 crores while DIIs bought more than Rs 20,000 crores.

Market underperformance is largely led by continuous weak earnings domestically, poor auto numbers and weak macroeconomic data. On the global front, concerns over US-China trade war mounted as US threatened to impose 10% tariff on the remaining $300 billion of goods and products coming from China to the US, effective September 1.

Equity markets globally failed to cheer the 25 bps US Fed rate cut due to the commentary post the policy outcome, which indicated that it may be the start of a trend and termed the rate cut simply as a “midcycle adjustment” dashing hopes of a longer rate-cutting cycle. However, on the positive side, according to IMD, the monsoon in the coming weeks are likely to make up for the shortfall.

Going forward, markets would keenly watch out for further development on US-China trade war. On the domestic front, some of the key companies would be declaring their results next week. Besides, the trend in global markets would continue to drive sentiments.

Technically, Nifty has formed a bearish candle on the weekly scale as overall trend is under pressure and it has been making lower highs - lower lows from last four weeks. The medium-term trend is under pressure but the index is turning from the deeply oversold territory so a hold near to 11,000 could see a bounce back move towards 11,111 then 11,150 zones while on the downside supports are seen at 10,900 then 10,850 levels.

(The writer is the Head - Retail research, MOFSL)

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