Trends on SGX Nifty indicate gap-down opening for Indian indices

FPJ Web DeskUpdated: Wednesday, April 06, 2022, 09:13 AM IST
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Asian share markets slipped on Wednesday as investors faced up to the possibility of aggressive monetary tightening by the US Federal Reserve to fight inflation /PHOTO / WANG ZHAO |

The trends on SGX Nifty indicate a gap-down opening for the broader index. Indian markets could open lower in line with negative Asian markets today and lower US markets on Tuesday, said Deepak Jasani, Head-Retail Research, HDFC Securities.

Judging by early action at SGX Nifty, it appears volatility will be hallmark of today’s trading session. Prashanth Tapse, Vice President (Research), Mehta Equities Ltd, said, Keeping investors on back foot will be the WTI Oil prices which hovers around $103 a barrel on supply concerns. Also denting sentiments will be sluggish leads from overnight Wall Street trade after Federal Reserve governor Lael Brainard said the central bank will reduce its balance sheet soon. "Our call of the day suggests a rough session on cards as all anxious eyes will be on Fed minutes to trickle in later in the evening. Our chart of the day is bullish on stocks like Balrampur Chinni, Tata Steel, SAIL, CONCOR and Titan Industries on any corrective declines with an inter-month perspective".

Mohit Nigam, Head - PMS, Hem Securities, said, Indian markets put an end to a two-day winning run on Tuesday, retreating from 11-week peaks scaled in the previous session, amid weakness across financial stocks as HDFC Bank and HDFC took a breather. Today, markets are likely to make gap-down opening tracking losses in global peers. Continuous rise in petrol and diesel prices likely weighed down on the market sentiments.

The government has extended the timeline for disbursement of loan for ethanol projects under different schemes till September 30 this year, as part of its efforts to boost domestic production and achieve ethanol blending of 20 percent by 2025. The US markets ended lower on Tuesday. Asian markets are trading in red on Wednesday following weakness over Wall Street overnight.

On technical front, Nifty50 may take support on 17,800 levels and resistance at 18,500 levels, Nigam added.

At close on April 5, the Sensex was down 435.24 points or 0.72 percent at 60,176.50. The broader Nifty was down 96 points or 0.53 percent at 17,957.40

Nifty logged the worst day in two weeks pulled down by financials. At close, Nifty was down 0.53 percent or 96 points at 17,953.4. Nifty was the worst performing index in the Asian region.

Nifty formed a bearish counter attack line but the advance decline ratio remained very positive suggesting that the broader market continues to do well. The Nifty also did not breach the highs of the previous day. 18,115-17,791 could be the band for the Nifty in the near-term, but the highs of the current upmove are yet to be registered, added Jasani.

Stocks to watch out for

There will be some buzz in banking stocks as rating agency ICRA Ratings said the outlook for banks is expected to be stable amid improvement in credit growth of 8.9-10.2 percent and decline in provisions in the current fiscal, said Nigam.

Auto industry stocks will be in focus as automobile dealers' body FADA said domestic passenger vehicle retail sales in March declined by 4.87 percent to 2,71,358 units, as compared to the same month last year.

There will be some reaction in real estate industry stocks with a private report stating that the residential housing industry showed robust growth in January-March 2022.

Asian shares decline

Asian share markets slipped on Wednesday as investors faced up to the possibility of aggressive monetary tightening by the US Federal Reserve to fight inflation, while focus was also on new Western sanctions against Russia over its invasion of Ukraine.

US Treasury yields hit multi-year highs and stock markets were red after Fed Governor Lael Brainard said overnight that she expected a combination of interest rate rises and a rapid balance sheet runoff to take US monetary policy to a "more neutral position" later this year, Reuters said.

In morning trade in Asia, Japan's Nikkei shed nearly 2.0 percent, while South Korean shares fell 0.9 percent and Australian shares lost 0.75 percent. MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.3 percent.

Hong Kong's Hang Seng index was down 1.3 percent, moving away from a one-month high hit on Monday. Shanghai lost 0.1 percent as markets in mainland China reopened after two days of public holidays. Activity in China's services sector shrank at the steepest pace in two years in March as a local Omicron surge restricted mobility and weighed on client demand, a closely watched private sector survey showed on Wednesday.

US stock indices close lower

All three major US stock benchmarks ended lower Tuesday, with the Nasdaq Composite leading the way down, as investors kept a close eye on plans for more sanctions on Russia and remarks by Federal Reserve policy makers.

Stocks saw a mixed start, but soon turned lower across major benchmarks following remarks by Fed Gov. Lael Brainard, who indicated policy makers could begin aggressively shrinking the size of the central bank’s balance sheet as early as its next meeting in May.

The Institute for Supply Management said its US index of business conditions at service-oriented companies rose 1.8 points in March to 58.3 percent, rebounding from an omicron-induced slowdown and in line with forecasts.

The yield on the US 10-year Treasury note climbed 14.5 basis points to 2.554 percent, the highest since April 23, 2019

China services sector contracts at steepest pace in 2 years

Activity in China's services sector contracted at the steepest pace in two years in March as the local surge in coronavirus cases restricted mobility and weighed on client demand, a private sector survey showed on Wednesday.

The Caixin services Purchasing Managers' Index (PMI) dived to 42.0 in March from 50.2 in February. Caixin's March composite PMI, which includes both manufacturing and services activity, slumped to 43.9 from 50.1 in the previous month, signalling the quickest reduction since the height of the country's COVID-19 outbreak in 2020.

ADB projects India's economy to grow by 7.5% in FY23

The Asian Development Bank on Wednesday projected a seven percent collective growth for South Asian economies in 2022 with the subregion's largest economy India growing by 7.5 percent in the current fiscal year before picking up to eight per cent the next year.

Releasing its flagship Asian Development Outlook (ADO) 2022, the Manila-based multi-lateral funding agency said the growth in South Asia is projected to slow to seven percent in 2022, before picking up to 7.4 per cent in 2023.

The subregion's growth dynamics are largely driven by India and Pakistan.

Bank credit growth may touch 10% current fiscal: ICRA

The outlook for banks is expected to be stable amid improvement in credit growth of 8.9-10.2 per cent and decline in provisions in the current fiscal, rating agency ICA Ratings said on Tuesday.

Gross Non-Performing Advances (GNPAs) of banks are expected to decline to 5.6-5.7 per cent by March, 2023 as against an estimate of 6.2-6.3 per cent by March, 2022.

"ICRA Ratings expects outlook for banks to be stable in FY23, based on continued improvement in earnings driven by improved credit growth of 8.9-10.2 per cent in FY23 (8.3 per cent for FY22 (expected) and 5.5 per cent in FY21) and decline in credit provisions," the agency said in a report on Tuesday.

Global bond sales to cross $10 tn in 2022: S&P Global Ratings

Global sovereign borrowing will reach $10.4 trillion in 2022, nearly a third above the average before the coronavirus pandemic, S&P Global Ratings said in a report. Despite an economic recovery, borrowing will stay elevated because of high debt rollover requirements and war in Ukraine, the ratings agency said in an annual note, Reuters said.

While 137 countries will borrow an equivalent of $10.4 trillion in 2022, an estimated 30 percent lower than 2020, the overall figure is one-third higher than average borrowing between 2016 and 2019, S&P said.

"Tightening monetary conditions will push up government funding costs," S&P analysts said.

Bullion outlook

On Tuesday Bullion fell as rising US Treasury yields and expectations for more aggressive monetary policy tightening by the Federal Reserve offset safe-haven demand for bullion spurred by possible new Western sanctions on Russia.

The dollar index and US bond yields rise after Federal reserve Governor Lael Brainard said that she expects methodical rate hikes and rapid reductions to the central bank’s balance sheet to bring US monetary policy to a more neutral position. After her statement, the dollar index crossed 99 marks again while the benchmark 10-year bond yields crossed 2.55 percent and put pressure on gold and silver. However, talks of more economic sanctions on Russia by western countries and higher global inflation pressures are supporting precious metals at lower levels.

Rahul Kalantri, VP Commodities, Mehta Equities Ltd., said, Gold has support at $1905-1892, while resistance at $1932-1944. Silver has support at $24.05- 23.80, while resistance is at $24.55-24.88. In INR terms gold has support at Rs 50,950–50,680, while resistance is at Rs 51,540–51,720. Silver has support at Rs 65,750- 65,320 while resistance is at Rs 66,760–67150.

COMEX gold traded marginally lower near $1923/oz after a 0.3 percent decline yesterday as US dollar index and bond yields have edged up ahead of FOMC minutes due later today which is expected to support market expectations of faster rate hikes. ETF outflows also show profit taking by investors amid stable equities. Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities, said, safe haven buying, concerns about Chinese economy and inflation concerns has however kept prices supported. Mixed factors may keep gold in a range above $1900/oz however geopolitical risks may result in buying interest at lower levels.

Crude oil prices ease

Oil prices eased in volatile trade on Tuesday, pressured by a rising US dollar and growing worries that new coronavirus cases could slow demand but losses were limited by supply concerns due to sanctions on Russia for alleged war crimes.

US crude was down 0.4 percent at $101.54 a barrel. Brent crude was off 0.4 percent at $106.19 per barrel.

The American Petroleum Institute (API) reported a surprise build this week for crude oil of 1.080 million barrels, compared to analyst predictions of a 1.558 million barrel draw. Demand worries mounted after authorities in top oil importer China extended a lockdown in Shanghai.

Rahul Kalantri, VP Commodities, Mehta Equities Ltd., said, We expect crude oil prices to remain volatile to negative in today’s session. Crude oil is having support at $98.40-$95.80 and resistance is at $105.20–107.50, In INR terms crude oil has support at Rs 7,540-7,360; while resistance is at Rs7,950–8,050.

NYMEX crude traded marginally lower near $101.7/bbl after a 1.3 percent decline yesterday. Crude came under pressure as EU once again decided to avoid any direct restrictions on Russian’s crude or natural gas exports. Also weighing on price is API report which noted an unexpected increase in US crude oil stocks. Rising virus cases in China has also pressurized prices. Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities, said, supporting price are supply risks and tighter US and global stocks. Crude may remain range-bound to negative ahead of inventory report however supply risks may keep a floor to prices.

Currency outlook

USDINR 27April futures contract extended its fall on Tuesday and slipped below 75.5500 levels. On the daily technical chart a pair is sustaining below its resistance level of 75.9000. MACD is showing negative divergence on the daily technical chart and RSI is also fetching below 45 levels.

As per the daily technical chart, we observed that a pair is sustaining below 75.9000 and technical indicators are also showing weakness in the pair, said Rahul Kalantri, VP Commodities, Mehta Equities Ltd. USDINR dropped tracking heavy foreign fund inflows into domestic equities and markets now await this week's RBI monetary policy decision. Looking at the technical set- up, if a pair continues to sustain below 75.9000; could test 75.3500 levels.

(With inputs from Reuters)

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