Since the last 2 weeks global market has been stabilizing, during which Indian market tried to go for some value buying but failed to extend the rally given domestic headwinds. For example key global indices like Dow Jones has rallied by 7 to 8% from the last 3month low due to ease from fear of US FED rate hike, comforting investor’s sentiment. US10yr yield are showing signs of consolidation but still at the higher side. In India at the same time some value buying was seen in Auto, Infrastructure, IT and Pharma. But selling in financial sector led by PSUBs is impacting the market, Nifty is still hanging near the recent low. Nifty is currently at 10,493 compared to the recent low of 10,276 (intraday). The consolidation in domestic market is continuing due to NPA & fraud issue, trade deficit, rise in bond yield and depreciation in INR due to selling by FIIs. FIIs are selling as foreign brokerages are lowering weight on India.
During the week, Nifty has been trading near the strong support of 10500, hovering around the 100day moving average with a risk whether it can touch 200day too. After expiry which was last week, the market was finding some support due to global stability and likely positive GDP, PMI & IIP. But consolidation in domestic market has been broad based impacting across all the sectors.
Further, investor’s sentiments were hit by the fraud in PNB and continuation of NPA related issues in PSU banks. Borrowing costs are likely to increase in the short-term as overseas lenders turn cautious about accepting bank guarantees issued by public sector banks. PNB’s Rs.113 billion fraud case is likely to alter the dynamics of the trade finance market. There will be short-term impact as banks become strict in approving buyers’ credit, possibly leading to drying-up of dollar funding to borrowers or spike in rates. Govt’s 10yr yield has increased to more than 7.7%.
The overall sentiments was also impacted by the tussle between domestic exchanges and SGX over restrict of data feeds. Given India has over 8.0% weight in MSCI index and global funds follows this index. Any reduction in weight may result in selling by these funds leading to further panic in market. Additionally, hawkish RBI minutes, rise in India 10 yr bond yield due to inflationary pressure and rupee depreciation is signaling the extension of consolidation phase.
Investors are waiting for fresh triggers to get direction. As per the quarter results the corporate earnings has started to pick up but concern on inflation, hike in interest rate may add pressure on the near term valuation. The sustainability in the global market is another key factor which may influence domestic investor sentiments. The key data to be watchful are Q3 GDP, manufacturing PMI and IIP data.