Markets post 8-day win streak on profit booking

Benchmarks shed more than 1% in a volatile trading session on Friday, ending an eight-day winning streak, amid weak global earnings and signal booking. The indices ended slightly in the green for the week, posting a fifth straight week of gains.

The S&P BSE Sensex ended the day at 59,646 on Friday, down 652 points or 1.1%, after falling 937 points from the day’s high. The Nifty 50 came in at 17,758, down 198 points, or 1.1%, led by real estate, oil and gas, metals and banking indices.

Volumes on the NSE were the highest since April 29, suggesting aggressive selling after a sustained rise. Local investors reduced their holdings after the recent surge, unloading shares worth around Rs 6,000 crore in August.

The rupiah erased all of the gains seen at the start of the week to edge closer to a three-week low on Friday, amid a rally in crude oil prices and the dollar’s gain to a one-month high .

Minutes from the US FOMC meeting indicated that the Federal Reserve may continue to opt for rate hikes to fight inflation. The FOMC expects to double the rate of balance sheet contraction in September.

REITs bought shares net to the tune of $5.6 billion, bringing the year-to-date net sale down to $22.2 billion. Further REIT flows may be dictated by Fed actions, the dollar index and the movement of crude oil prices. The dollar index rose more than 2% in the past five days to hit 108 levels.

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Emerging funds significantly increased their allocation to India in July (19.7% vs. 18.1% the previous month), while the allocation to China decreased significantly (36.2% vs. 39.4% ), according to a report by BofA Securities. The report attributes this to India’s better growth prospects among major emerging markets, lower commodity and crude prices and the relative outperformance of INR within emerging markets.

However, India’s overweight position in emerging funds is still at its lowest in several years at 0.14% from 0.66% in November 2020.

“We expect India’s economic and earnings growth to outperform large emerging markets and therefore remain bullish on domestic cyclicals and defensives. However, we remain cautious on external sectors such as IT, Energy and Materials, given the global macroeconomic headwinds,” observed BofA Securities.

Asian stock markets were trading mixed on Friday after broadly positive signals from global markets overnight, while European markets were slightly higher.

Benchmarks are up around 7.7% in the past month amid softer commodity prices, REIT buying, a healthy monsoon and a better-than-expected earnings season . Global crude oil prices fell to their lowest levels in six months. Consumer price inflation in India fell for the third consecutive month in July, raising fears that the Reserve Bank of India may slow the pace and extent of rate hikes in the coming months .

The Sensex is 4.2% off its lifetime high of 62,245 which it hit on October 19 last year.

“Technically, the Nifty has formed a long bearish candle and has also broken the important support level of 17,850 which is broadly negative. In addition, it has also formed a Hammer candlestick formation indicating further weakness in the near future” , said Amol Athawale, Assistant Vice President – ​​Technical Research, Kotak Securities.

The market will be keeping a close eye on the Jackson Hole symposium next week, which will provide clues for future Fed action.