It was a bad week at the markets and they fell quite sharply. Indian benchmark indices fell on all the five trading sessions and hit new 52-week lows in the process. These lows were made on Friday. BSESENSEX lost 2,943.02 points or 5.42% to close at 51,360.42 points while NIFTY lost 908.30 points or 5.61% to close at 15,293.50 points. The broader markets saw BSE100, BSE200 and BSE500 lose 5.51%, 5.56% and 5.66% respectively. BSEMIDCAP was down 5.31% while BSESMALLCAP lost 6.67%. A very interesting trend observed during the week was the fact that markets lost very sharply on Monday and Thursday and were marginally negative on the remaining three days. 

The Indian Rupee lost 24 paisa or 0.31% to close at Rs 78.07 to the US Dollar. Dow Jones had a torrid week as well and lost on four of the five trading sessions. It made surprise gains on the day that FED raised interest rates and caught the short sellers by complete surprise. Dow lost 1,504.01 points or 4.79% to close at 29,889.78 points. It also hit a new 52-week low on Friday of 29,695 points. Dow is now down 18.09% on a year-to-date basis.

After very high inflation numbers in the US which were declared on 10th of June, a steeper rate hike was on the cards and the 75-basis points hike was the highest since 1994. The new interest rate band is between 1.5-1.75% and it is almost certain that there would be another 75-basis point hike in the next FED meeting slated for the last week of July22. 

The Indian markets have also made new 52week lows on the BSESENSEX of 50,921.22 points and 15,183.40 points on NIFTY. At present levels, BSESENSEX is down 11.83% on a year-to-date basis while NIFTY is down 11.87%. The comparison is clear between the US and Indian markets and that partially explains why FIIs or FPIs are in a sell-off mode in Indian markets. They are still making money even though they seem to be selling left, right and centre. Their total sales in the current calendar year stand at 2.67 lac crs or 34.5 billion US Dollars. This is in under six months. In the last 30 years that FII’s have been in India, this is their highest sale ever. 

This week we had no sectoral gainers in India and the sector to fall the least was BSEFMCG which lost 3.29%. The one to lose the most was BSEMETAL down 9.60%. 

The primary markets seem to have gone into hibernation and there is no visibility of any IPO likely to happen in the current month. Maybe something does come up in July at best. 

We have fallen to new levels and in the process have broken key support levels. While the markets in India are oversold, the sentiment continues to remain bearish. People are now talking of 14,000 levels on the NIFTY which would correspond to 47,000 on the BSESENSEX. While in reality anything can happen, the number seems too far away at this point of time. Expect markets to rebound in the coming week. This rebound could be technical in nature as markets are oversold. It could be a dead cat bounce as people refer such rallies. It could be because there is a respite in selling from FPI’s or any other reason that could be attributed at the end of the day. But some recovery is imminent.

It makes sense not to remain on the short side in the coming week. Allow markets to rebound, even if it is just a short rebound. Let water or markets seek their own levels. The June series will expire on the last day of the month on 30th June and that is nine trading days away. The current level of 15,293.50 points is down 876.65 points or 5.42% already. It needs to bounce before it decides where it would end at series end. Next big news would be the April-June quarterly results which are three weeks away and they may not be the best with commodity prices refusing to soften and buyers unwilling to pay higher prices. We are traversing tough times and probably the rain would bring some relief. 

Simple strategy for the week ahead would be to exit shorts and allow markets to regain some lost ground. Expect global markets to join in the relief rally or pullback as the case maybe. Allow the markets to play out and take a call on shorting only towards the weekend again.

Markets were under pressure on expected lines and lost on four of the five trading sessions. Thursday was the sole exception for the week when markets recovered ground quite sharply driven and led by one stock. BSESENSEX lost 1,465.79 points or 2.63% to close at 54,303.44 points while NIFTY lost 382.50 points or 2.31% to close at 16,201.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 2.17%, 2.07% and 2.06% respectively. BSEMIDCAP lost 1.25% while BSESMALLCAP lost 2.00%. 

The Indian Rupee was under pressure and lost 21 paisa or 0.27% to close at Rs 77.83 to the US Dollar. Dow Jones had a torrid week losing 1,506.91 points or 4.58% to close at 31,392.79 points. Inflation in the US is at its highest levels since the 1980’s and people are getting really worried. Some leading brokerages have put out warning signals that the FED hike on Wednesday could be as steep as 75 basis points. In any case in an economy which has been under a virtual zero interest regime for so many years seeing such rises would be unprecedented and unimaginable. How markets would react is anybody’s guess.

Reliance industries turned the tide on the only day when markets gained on Thursday. The share gained from the day’s low of Rs 2,709 to close at Rs 2,799, marginally below the high of the day of Rs 2,802. The day’s gain was Rs 84 or 3.09%. Thursday was a weekly expiry and saw huge volatility and short sellers being sent to the cleaners. It’s a different story that Reliance ended the week at Rs 2,714 down Rs 66 or 2.37% for the week. 

RBI raised rates at its monetary policy meeting which concluded on Wednesday. RBI raised repo rates by 50 basis points to 4.90%. This is the second hike in the current financial year 2022-23. Earlier it had hiked rates by 40 basis points in an off-cycle meet. RBI believes that inflation would remain high for another two quarters and would then fall below the tolerance level. It expects CPI inflation to remain at7.5% in Q-1, 7.4% in Q-2, 6.2% in Q-3 and 5.8% in Q-4. RBI believes that inflation would gradually slow down and expects inflation at 6.7% for the year 2022-23. Analysts believe that if inflation is controlled at levels as stated it would be a great thing. 

Immediate impact of the rate hike has been felt on the housing sector with home loans seeing an increase in interest rates. How the housing or real estate sector behaves would take some time for clarity to emerge. 

Global markets are awaiting the FED action at its meeting on Wednesday where rates are to be raised for sure. By how much is still being debated. Markets in India would react to the news on Thursday when they open for trading. 

Market intermediaries in India have over the last couple of quarters been talking about continuous FII selling and the fact that this is dampening market sentiments. While there is no one way of looking at things, the fact that domestic institutions led by mutual funds have been matching FII sales on a regular basis by continuously buying is not helping matters. They (FII) are getting a comfortable exit without losing any sleep or money. They are exiting quite comfortably, making money on their sales and awaiting better days to buy. FII’s are selling in all comparable markets like India, simply because free money is no longer available. There is a cost to money and that is increasing quite rapidly. 

I believe, if the domestic institutions allow FII’s to sell without absorbing them, they would stop at a particular level because they would be destroying their own exit plan. It’s a way of looking at things and also a way to present things. One does understand that domestic inflows through SIPs and normal schemes is quite strong and many a times compels mutual funds to invest. 

One more week has lapsed without any activity in the primary market and nothing likely to happen either in the coming week. The present conditions in the market and the fact that this new rampant system of applications after being bid, and not being banked is hurting the system. Bankers have a little over two and a half months till 1st September 2022 to set the system right.

Coming to the week ahead it appears that the levels of 16,400-16450 on NIFTY and 55,000-55,200 on BSESENSEX have been broken and maybe decisively this time around. The fall in the US on Friday and the concern emerging post inflation numbers and expected rate hike on Wednesday will not allow markets to breathe easy. In such a scenario, even if markets don’t fall, they will at best drift. In either case with each passing day and lower levels being touched, resistances at upper levels would become stronger. The closest level of support for the markets continues to be around 53,450 and 15,900 levels on the BSESENSEX and NIFTY respectively. Below this we have levels at 52,700 and 15,700. One must remember that markets have a tendency to reverse direction temporarily before breaking key supports or resistances. On the upside while strong resistances are at 55,200 and 16,400. Beyond this it looks difficult currently. 

News flow is the other way that markets may revive. Currently no such expectation of news exists. The Russia-Ukraine war is over 100 days old and each passing day adds to the count, not a resolution. Results season for the quarter April-June is almost a month away. Inflation is taking its toll and the ability of manufacturers to pass on price hikes is disappearing and becoming much tougher.

Trading strategy would be to sell on rallies and wait to re-enter. Opportunities to enter again would be available in plenty. Trade cautiously and use sharp swings to enter markets in a select group of stocks.