Nifty records 3 consecutive monthly fall; over 50 stocks in BSE500 rise 10-60% in August

We expect the index to undergo base formation in the broad range of 10,800-11,200 amid stock specific action in the upcoming truncated week, said Dharmesh Shah of ICICI direct.

The government walked the talk in August. But, weak global cues, muted earnings from India Inc., corporate governance issues and currency volatility weighed on the sentiment.

The Indian market recorded its third consecutive monthly fall, but on a weekly basis. Both Sensex and Nifty closed with gains of around 2 percent. The Nifty50 fell 5.6 percent in July, and 1.12 percent in June 2019.

On a monthly basis, the S&P BSE Sensex fell 0.4 percent while the Nifty50 was down by 0.85 percent. However, on a weekly basis, Nifty50 gained 1.79 percent, and the S&P BSE Sensex rose 1.72 percent in August.

But, there were more than 50 stocks in BSE500 index which bucked the trend as they rose 10-60 percent in the last month include names like Nestle India, Pidilite Industries, Ceat, Berger Paints, Maruti Suzuki, Apollo Hospitals, VIP Industries, Ujjivan Financial Services, Ajanta Pharma, and Hathway Cable, etc. among others.

The government introduced various measure especially in the last seven days to boost the consumer and investor sentiments. But, weak global cues and persistent selling by foreign investors (FIIs) capped the upside. FIIs have pulled out nearly Rs 15000 crore from the cash segment of India markets in August, Moneycontrol data showed.

From the rolling back of high taxes on foreign investors to tweak in FDI norms and on August 30, Finance Minister Nirmala Sitharaman unveiled mega merger plan to help India become a $5 trillion economy and kick start investment cycle.

Sitharaman announced a mega-merger in the public sector banking space, amalgamating 10 banks into 4. The consolidation will bring down the total number of public sector banks to 12 from 27.

“The news on PSU bank consolidation is definitely very positive, it also takes away uncertainties surrounding which all banks would be consolidated together. With a clear roadmap known, the market would be in a position to rightly value PSU banking stocks,” Shailendra Kumar, Chief Investment Officer - Narnolia Financial Advisors, told Moneycontrol.

“Along with the consolidation, the government has announced a series of administrative reforms related to PSU banks, added together those reforms will help Indian credit market,” he said.

After the budget, the system liquidity has already turned surplus, and NPA for PSU banks have come down from its peak a few quarters back, the clarity on consolidation is a further positive for PSU banking stocks, suggest experts.

The GDP data print for the June quarter is not encouraging as growth dipped to over a six-year low. But, experts feel that much of it was factored in by markets. But, a knee-jerk reaction could be possible on September 3 as the growth was still below expectations.

India's gross domestic product (GDP) grew 5 percent in April-June 2019, official data released on August 30 showed, confirming fears of a slowdown. The GDP growth was 8 percent in the same quarter of 2018-19.

“We believe a subdued GDP growth was factored in by the markets to a certain extent, but the GDP data for Q1FY20 came in at 5% as compared to 5.8% in Q4FY19. The growth was below expectation and this could further drag the markets down,” Ajit Mishra, Vice President – Religare Broking, told Moneycontrol.

“On the other hand, there may be more rate cuts in the future to revive the economy. In short, markets may remain volatile in the near term unless there are visible signs of economic revival,” he said.

Technical View: Where Nifty is headed in the coming week

The S&P BSE Sensex, as well as Nifty50, staged a strong comeback and ended the week on a buoyant note. The broader market relatively outperformed the benchmarks in the week gone by but underperformed for the month of August.

The S&P BSE Smallcap index rose 2.86 percent while the S&P BSE Midcap index gained 2.01 percent for the week ended August 30. The Nifty midcap and smallcap indices rose 2 percent and 3.7 percent respectively.

The weekly price action formed a high wave candle with significant lower shadow, reflecting strong recovery after factoring in global volatility as buying demand emerged from 61.8% retracement of major up move (10,005-12,103)

“Going ahead, we expect the index to undergo base formation in the broad range of 10800-11200 amid stock specific action in the upcoming truncated week, setting the stage for eventual resolve above last four weeks high of 11,200,” Dharmesh Shah, Head – Technical at ICICI direct, told Moneycontrol.

“If the index closes above 11,200 then it would take the index towards 11,500 in the coming month, so any dips should be capitalized as a buying opportunity,” he said.

Shah further added that any dip towards 10,800 should be used as an incremental buying opportunity in the upcoming truncated week.

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