Markets To Consolidate

It was a volatile week for the Indian equities as after witnessing a consistent up-move in the first four trading sessions of week and touching a new all time levels, Indices witnessed a decline on last trading session of the week. Indian markets fell from their record highs on Friday, on profit booking in key financial and metal stocks. While Sensex closed at 26127 down 145 points (0.6%) from its previous close. The National Stock Exchange’s Nifty closed at 7790, down 40 points (0.5 %), after hitting an all-time of 7840 during the day. The decline ended the market’s eight straight days of gains, during which the benchmark indices rose nearly five per cent.

The sharp up-move was led by robust buying from foreign investors. The market also followed global cues, where shares declined on rising geo-political conflicts in Gaza and Ukraine. European and US shares were trading almost one per cent lower. However, Asian stocks climbed as robust earnings cheered the markets. We believe derivatives segment expiry this prompted investors to trim positions. While people are still optimistic about economic growth, they are mindful of the sharp rises in the market we saw in the past eight sessions. Also, the level of participation from the institution-side has tapered a bit, an indication that the markets could weaken a bit. FIIs were net buyers to the tune of Rs 4907 crore in the eight sessions between July 14 and 24. On Friday, foreign investors’ net purchase was muted, at Rs 125 crore. Selling was seen in blue-chip stocks like State Bank of India and ICICI Bank, each sliding about two per cent. Wipro fell about 4.6 per cent after the dollar revenue forecast by the company disappointed the markets.

As for the global markets, US stocks closed lower on Friday in a broad consumer discretionary-led selloff after Visa and Amazon, a pair of closely watched bellwether names, reported disappointing results. While the S&P 500 found support at its 14-day moving average, suggesting a recent positive trend in equities remains intact, the decline on that particular day was enough to erase the benchmark index's gain for the week. Earnings have largely been better than expected this season in terms of both profit and revenue. However, there have been high-profile disappointments, including Boeing Co and Caterpillar Inc earlier this week. Amazon.com Inc tumbled 9.6 percent to USD 324.01 as the biggest drag on the S&P 500 after reporting an unexpectedly big second-quarter loss due to greater expenses on investments. The Dow Jones industrial average fell by 123.23 points (0.72 %) to 16960.57. The S&P 500 lost 9.64 points (0.48 %) to 1978.34 and the Nasdaq Composite dropped 22.54 points (0.5 %), to 4449.56. At the global level, market participants will be keeping a close watch on developments in West Asia and its impact on oil prices.

On the domestic front, corporate results for the quarter ended June 2014 will be key events to track besides progress on monsoon. With the major event of Budget out of the way, the market will likely continue to focus on issues like monsoons, global economy and quarterly results in the short term.

On the monsoon front there has been a marked revival as there is no deficit monsoon on overall basis in India. According to data declared by Indian Meteorological Department (IMD) on July 23, there is 24% more rainfall above the long period average.  

As for the Asian markets, there are some positive indications as Nikkei is trading in green with gains of 0.50% and Shanghai Composite is also trading with gains of 1.53%. Even Hang Seng is trading with gains of 0.55%.

SGX Nifty is trading almost flat with Marginal gains of 3 points. We are of the opinion that, with expiry occurring this week not many traders would like to carry heavy positions. Hence we expect indices to witness profit booking. Expect a flat opening for markets today.