Nifty Records 0.5% Weekly Decline Amidst End of 17-Week Rally
Indian equities witnessed a decline of 0.5% over the week, putting an end to four consecutive weeks of gains. Market experts highlighted that the crucial support level for Nifty stands at 19,562, and a breach of this level could lead to a further 2% fall, marking the end of the 17-week rally that began from the low of 16,828. Deepak Jasani, Head of Retail Research at HDFC Securities, pointed out this critical support level and potential downside risk.
Vinod Nair, Head of Research at Geojit Financial Services, commented on the volatile week, with the benchmark index underperforming broader peers. Several headwinds were identified as contributing factors to the recent correction in the domestic market. These headwinds include mixed Q1 results, a reversal in FII activity, rising dollar index, increasing US bond yields, and higher crude oil prices.
The upcoming days are anticipated to be influenced by domestic earnings, acting as a significant driver for the market, alongside global cues. Nagaraj Shetti, Technical Research Analyst at HDFC Securities, observed a potential new lower high formation in Nifty, indicating an ongoing downward correction.
During the corporate earnings season, Nifty-50 (excluding financial & commodity sectors) operating earnings grew by 11% YoY, falling 3% behind expectations, with weaker performance seen in IT services, cement, and FMCG sectors.
UBS India Economist, Tanvee Gupta Jain, highlighted that India’s economic momentum has been sustained, even as reopening tailwinds have faded and global headwinds persist. However, sequential momentum has softened in June, indicating an uneven economic recovery concerning rural-urban divide, manufacturing vs. services growth, and affluent vs. lower-income household demand.
Despite reasonable headline growth, the underlying economic recovery remains patchy, with household consumption facing normalization due to tight monetary policy and depletion of pandemic savings. While government capex and demand for residential real estate have supported capex growth, private corporate capex remains gradual due to weak goods export demand and global growth uncertainty. It’s noteworthy that India’s goods exports have contracted for five months, whereas services exports have remained stable.
Overall, market experts believe the near-term market may remain capped due to elevated valuations and slower growth in advanced economies. Nevertheless, strong FPI equity flows continue to support Indian equities, keeping them near lifetime high levels.
It is essential to keep a close eye on domestic earnings and global cues in the coming days as they will play a critical role in shaping market trends amid the ongoing correction in the Indian market.
