Sensex ended above its crucial psychological support at 38,000 on July 22, shedding 305 points while Nifty broke below 200-day exponential moving average (EMA) closing 73 points lower at 11,346.
In terms of sectors, Finance, Realty and FMCG fell over 1 percent each while metals, telecom, pharma and oil & gas attracted buying interest.
We have collated a list of top 5 factors that could be weighing on markets:
Muted global cues:
Indian market woke up to muted global cues. Asian markets fell as investors scaled back expectations of an aggressive Federal Reserve interest rate cut. A rise in crude oil prices also weighed on sentiment.
Expectations for a larger cut were scaled back even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month and may make further cuts in the future given global growth and trade uncertainties, said a Reuters report.
Global equity markets had risen briefly toward the end of last week after dovish comments by New York Fed President John Williams boosted expectations that the central bank would lower rates by 50 basis points (bps) at its July 30-31 meeting, added the report.
Corporate Results: HDFC Bank and RBL Bank down post Q1 results
HDFC Bank—Sensex and Nifty heavyweight—was the top loser as moderate weakness in Q1 asset quality and a slowdown in retail loan growth weighed on sentiment.
The private sector lender registered a 21 percent year-on-year increase in profit and 23 percent rise in net interest income with loan growth at 17 percent for the quarter ended June 2019, which all came in line with analyst expectations.
Most brokerage firms maintained their rating on HDFC Bank but some of them lowered their growth estimates marginally. Credit Suisse has an outperform rating on the stock with a target price at Rs 2,700, implying 14 percent potential upside from current levels.
“Growth has moderated but core profitability is intact. Credit Suisse cut its FY20/21 EPS estimates by 3 percent,” said the note.
Brokerage firms maintained their recommendation on RBL Bank but slashed their respective target price after June quarter results. Ambit Capital maintained its 'sell' call on RBL Bank and slashed its target price to Rs 393 from Rs 426 earlier.
RBL Bank reported over 40 percent rise in net profits for the quarter ended June on the back of higher net interest income and other income, but fears of increasing bad loans capped upside.
FIIs press the ‘sell’ button in July:
Investors have lost over Rs 6 lakh crore since the Union Budget as foreign investors pressed the ‘sell’ button on equities following the announcement of super-rich tax.
The average market capitalisation of BSE-listed companies dived from Rs 151.35 lakh crore recorded on July 5 to Rs 145.34 lakh crore as on July 19, which translates into a fall of Rs 6.01 lakh crore.
According to the latest data available with depositories, a net sum of Rs 7,712.12 crore has been pulled out from equities during July 1-19. However, foreign investors pumped in Rs 9,371.12 crore in the debt segment during the period.
This translates into a net investment of around Rs 1,659 crore in July so far into the capital markets (both equity and debt).
NBFC crisis:
According to a report from Reuters, Governor Shaktikanta Das said the non-banking finance companies (NBFCs) or so-called shadow banks in the country have been struggling with a significant liquidity crunch since the collapse of IL&FS last year.
Das reiterated that the RBI will constantly monitor the NBFCs and remain alert as the regulator and the monetary authority in the country.
“We are in constant interaction with the banks and it’s our endeavour to ensure collapse of another NBFC, especially a large one, doesn’t happen.” Das also said there would be no special liquidity window for the shadow banks currently.
Also Read: RBI's change in stance as good as an additional 25 bps rate cut: Shaktikanta Das
Technical factors:
Nifty broke crucial support levels on July 19. The index, which was trading below the crucial short term moving average, also breached its long term moving an average of 200-day exponential moving average placed at 11,330.
The next big support for the market is near 200-day moving average (DMA) placed at 11,127-11,280. But, analysts are hopeful that markets could bottom in the next two weeks.
The Nifty fell from 11,700 to 11,400 in just two days largely due to selling from foreign investors. The index closed below the 11,460, which was one more lower-low for the market since June 2019.
"Since February 2016, any bearish trend has lasted for a maximum of two months on a closing basis. We are expecting the market to bottom in the next two weeks," Shrikant Chouhan, Senior VP, Technical Research at Kotak Securities told Moneycontrol.
"A cluster of major supports for Nifty is placed between 11,320 and 11,280. Around 11,300, Fibonacci ratios and price extensions are going to provide significant support to the market in the near term," he said.
Chouhan further added that a failure to do so would result in a quick drop to 11,100, which was the previous lowest level for Nifty before the outcome of General Elections 2019.
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