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Rate hikes by central banks drag market 4%; over 100 smallcap sheds 10-25% – Moneycontrol

A surprise rate hike by the Reserve Bank of India (RBI), weak global markets after the Bank of England (BoE) and the US Federal Reserve raised interest rates to tame the rising inflation and uncertainty over the Russia-Ukraine war pulled the Indian market down 4 percent in the week gone by.

The Sensex shed 2,225.29 points, or 3.89 percent, to close at 54,835.58, while the Nifty fell 691.25 points, 4.04 percent, to end at 16,411.3.

Among sectors, the Nifty information technology index declined 15 percent, Nifty media 12 percent and Nifty realty index shed 10 percent. The Nifty Energy index, however, added 9.4 percent.

The BSE midcap index was down 3 percent, smallcap index 2.6 percent and the largecap index plunged 4 percent during the week.

“The May month kick-started on a weak note in-line with what SGX was indicating… Later on, a surprising rate hike by RBI triggered a massive selloff in our markets to send the Nifty below the key support zone of 16,800 with some authority,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

The following day, it appeared as if the selling was an overreaction but then global markets played spoilsport.

It was one of the worst weeks in the last three months as the Nifty shed more than 4 percent. Typically, global factors trigger such substantial selloffs but this time, domestic developments were to be blamed and to make matters worse, global cues added to the panic, he said.

“Honestly speaking, we did not expect the fall to extend below 16,500 but when global uncertainty comes, no level is respected. Globally, things have become extremely bleak and it would be very difficult to assess the situation there. Despite this, we do not want to get carried away and hence, would avoid going short aggressively,” Chouhan said.

Foreign institutional investors (FIIs) sold equities worth Rs 12,733.46 crore, while domestic institutional investors (DIIs) bought shares worth Rs 8,533.26 crore.

During the week, more than 100 smallcap stocks declined between 10 and 25 percent, with Angel One, Solara Active Pharma Sciences, 63 Moons Technologies, Brightcom Group, Future Retail, TV18 Broadcast, DB Realty, Morepen Laboratories and Future Enterprises losing 15-25 percent.

smallcap

On the other hand, Future Consumer, Gokaldas Exports, Paisalo Digital, Future Supply Chain Solutions and Home First Finance Company India rose 10-27 percent.

“Post a consolidation phase in the later half of April, the Nifty breached the important support of 16,825 during mid-week after a surprise rate hike by the RBI. This resulted into a breakdown from a ‘Bearish Flag’ pattern on the daily chart in Nifty which turned the short-term trend negative,” Ruchit Jain, Lead–Research, 5paisa.com.

As of now, the trend continues to be negative and the relative strength index (RSI) oscillator on the daily chart is not yet in the oversold zone to attempt a reversal.

“The momentum oscillator on the lower time frame chart is in oversold zone and hence we could some in between pullbacks but such pullback moves are likely to get sold into and hence, traders should continue to stay cautious,” Jain said.

“The ’20 EMA’ on the hourly chart has acted as a resistance in last few sessions which is now placed around 16,640 and is the hurdle to Nifty.”

On the flipside, the bearish pattern has given a target projection of 16,125, thus 16,200-16,125 would be range to watch out for, he said.

Among midcaps, losers were Info Edge India, Voltas, Apollo Hospitals Enterprises, Cholamandalam Investment and Finance Company, CRISIL and Aditya Birla Capital. However, gainers were ABB India, Adani Power, Endurance Technologies and Supreme Industries.

The BSE 500 index shed 4.3 percent, with 44 stocks losing between 10 and 25 percent. These include Angel One, Solara Active Pharma Sciences, Brightcom Group, TV18 Broadcast, Info Edge India, Zomato, Voltas, Sonata Software, Apollo Hospitals Enterprises and Intellect Design Arena.

“Amid rising interest rate, elevated crude oil price and high inflation, the markets will likely remain volatile. Further, stock-specific action can be expected based on Q4 results and management commentary,” Chouhan said.

Where is Nifty50 headed?

Yesha Shah, Head of Equity Research, Samco Securities

Given a slew of macroeconomic releases, the current result season and several IPOs that will open for subscription, volatility is expected to persist.

Global market movements will be determined by the inflation print of the US and China. India’s industrial output data, domestic inflation rates, and manufacturing output will keep the domestic market on edge.

Following the surprise interest rate hike by the RBI, Indian inflation is largely predicted to be about 7.4-7.5 percent, far more than the central bank’s acceptable limit. However, a higher-than-expected inflation figure might worsen sentiment.

Investors are advised to keep a long-term horizon and be extremely selective with their picks. The index is now trading just at the previous support of 16,400.

The short-term trend has turned bearish and is likely that markets will slide even lower. Having said this, if we look at the larger picture, the benchmark index is trading mostly in a wider range of 16,400 to 18,400 since October.

Therefore, a bounce from current levels cannot be ruled out as well. Traders are advised to avoid initiating fresh shorts at current levels. They can maintain a neutral to mild negative bias and look for sell-on-rise opportunities. The immediate support and resistance are now placed at 16,000 and 16,800.

Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One

If we take a glance at the daily time frame chart, we can see the ‘Pennant’ pattern target in the vicinity of 16,200 – 16,000, which is not far from the current level. Hence, we rather wait for some reversal in the coming week.

On the higher side, 16,500 followed by 16,700 are the immediate levels to watch out for. Let’s see how things pan out globally and be hopeful for some sustainable relief on that front.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

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