Short-term market conditions appear weak; however, a significant rebound from current levels is possible due to overselling. Analysts believe that if the trade agreement with the USA is finalized by October, earnings growth is unlikely to suffer severely. Companies require clarity regarding tariffs to effectively manage costs and demand forecasts. During the recent week, the NSE Nifty declined by 443.25 points (-1.78%) to close at 24,426.85, while the BSE Sensex fell by 1,497.2 points (-1.84%) to 79,809.65. Foreign institutional investors (FIIs) sold Rs 21,151.90 crore, while domestic institutional investors (DIIs) purchased Rs 28,645.04 crore. The market faced multiple challenges, including the US imposing a 25% secondary tariff on Indian shipments, leading to an overall duty of 50%.
Continuous FII selling, escalating trade tensions, and a lack of new domestic triggers contributed to a nearly 2% drop in the market, halting a two-week gaining streak. The Sensex ended the week 1,497.2 points lower, and the Nifty lost 443.25 points. Broader market panic was evident, with the BSE Mid-cap and Small-cap indices declining nearly 3%. Apart from the fast-moving consumer goods (FMCG) sector, most others experienced significant selling pressure. The Indian rupee also reached a new low of 88.31 against the US dollar, closing the week at 88.20 after fluctuating between 87.34 and 88.31. FIIs have been net sellers for nine consecutive weeks, while DIIs have been net buyers for twenty weeks.
The selling trend is linked to various factors, including US-India trade tensions, disappointing corporate earnings, currency depreciation, high US interest rates, and valuation concerns. Despite these issues, Fitch Ratings affirmed India’s Long-Term Foreign-Currency Issuer Default Rating at ‘BBB-’ with a stable outlook, and S&P upgraded India’s sovereign rating to ‘BBB’ with a stable outlook as well. India’s economy grew by 7.8% in the April-June quarter, making it the fastest-growing major economy globally, supported by growth across agriculture, manufacturing, construction, and services. With appropriate strategies, India could mitigate the impact of higher US tariffs on selected imports to about 10 basis points of real GDP growth, through measures like export diversification and reducing import dependence.
If the trade deal with the USA is finalized promptly, it could prevent significant earnings growth disruption. However, delays in the deal may increase risks and pressure on earnings and the overall economy. Earnings recovery is crucial for equity markets, which have been affected by global uncertainties, particularly trade talks. Nevertheless, domestic liquidity remains strong, with record mutual fund inflows, reflecting retail investors’ confidence in India’s growth potential. While the short-term outlook appears weak, an oversold market suggests a potential for a sharp rebound. Investors are advised to conduct thorough research before making decisions. In the futures and options sector, heightened selling during settlement week coincided with Ganesh Chaturthi, fueled by growth concerns linked to US tariffs.
Nifty rollovers increased to 83.63%, exceeding last month’s 75.71% and the three-month average of 78.11%, indicating strong momentum. For Nifty, positions were primarily rolled within the 24,800-24,850 futures range, and for Bank Nifty, the key rollover range was 54,650-54,750. In options, the highest call open interest was at the 24,600 and 24,500 strike levels, with prominent put writing at 24,400. Implied volatility for Nifty’s call options was 10.93%, while put options settled at 11.89%. The India VIX, a volatility indicator, ended the week at 12.18%. A fresh selloff could occur if the 24,330/79,700 level is breached, while a pullback rally could continue if it surpasses 24,550/80,500. For Bank Nifty, sustaining above 53,500 could lead to further gains toward 54,500-55,000.
Conversely, a drop below 53,500 may result in declines toward the 200-day SMA around 53,000-52,800. Traders should monitor these levels and remain alert to global developments influencing market direction. Stocks that appear promising include Britannia, Cipla, CG Power, Grasim, IDFC First, Torrent Power, and Voltas, while stocks facing challenges include Amber, IIFL, IEX, JSW Energy, KFIN Tech, Muthoot Finance, and 360 One.