Hold tight! FM booster shot likely to bring respite; 600 stocks hit 52-week low

The Indian markets fell for a third straight week with both Sensex and Nifty trading below their crucial support placed at 37,000 and 11,900 respectively.

The S&P BSE Sensex fell 1.7 percent while the Nifty50 plunged 1.97 percent for the week ended August 23, but the carnage was seen in individual stocks.

As many as 582 stocks on the BSE hit a fresh 52-week low which includes names like Page Industries, Either Motors, Blue Dart, IndusInd Bank, HEG, Cipla, Escorts, Jubilant FoodWorks, and Bharat Forge.

Indian markets remained under pressure throughout this week on concerns of weakening economic growth, CEA dashed hopes of any material stimulus package, minutes from US Federal Reserve which gave few insight on the trajectory of future interest rates, and muted earnings season.

However, recommendations made by Finance Minister Nirmala Sitharaman post market hours on August 23 could well bring some respite to D-Street which remained in the clutch of bears since July, but a sustained rally would only be possible in case of earnings see a rebound.

Giving a major relief to market participants, Finance Minister Nirmala Sitharaman on August 23 announced the abolition of a tax surcharge on foreign portfolio investors (FPIs) as well as domestic investors.

"Withdrawal of the surcharge on FPIs is a shot in the arm for the sagging market. One can now expect a reversal of the FPI selling. The market is likely to look up from now on,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told Moneycontrol.

“However, a sustained rally in the market will happen only when we have visibility on good earnings growth and reversal of the slowdown underway in the economy. This requires more reforms. The FM has announced that she will come back with more reforms soon. So, there is hope,” he said.

The Indian market which was reeling under the pressure of muted growth in earnings, corporate governance issues in stocks like CG Power dented sentiment with respect to the broader market.

The S&P BSE Smallcap index fell more than 3 percent, while the S&P BSE Midcap index was down 2.1 percent for the week that ended on August 23.

“Companies such as CG Power voluntarily come out with wrongdoings only during extreme pessimism. In a way, this phase will bring all the dirty linen out in the open and clean up the system for the next bull run,” Jimeet Modi, Founder & CEO - SAMCO Securities & StockNote, told Moneycontrol.

“Currently, every small and midcap company is beaten down on the presumption that there is likely some mischief in them,” he said.

As many as 35 companies in the S&P BSE 500 index fell 10-40% which include names like CG power (down 46 percent), followed by Reliance Capital (down 28%), Edelweiss Financial Services (down 25 percent), and YES Bank (down 25 percent).

Technical View:

The Nifty50 bounced back after hitting a low of 10,637 to reclaim 10,800 levels towards the close of the trade. Whenever Nifty breached 10,682 which is the closing level seen on December 31, 2018, the index has always bounced back.

As long as Nifty50 trades above 10800 level, bulls have a chance to reclaim 10,900 and head towards 200-DMA placed above 11,190 levels.

The weekly price action formed a bear candle with sizable lower shadow, as supportive efforts emerged from the vicinity of key support placed around 10,600 levels.

The Nifty50 witnessed a sharp recovery of more than 200 points from lows with buying seen in heavyweights across sectors from the oversold territory indicating dwindling downward momentum.

“Going ahead, we expect the index to hold last week’s panic low (10,637) on a closing basis and gradually head towards 11,200 levels in the coming weeks being the confluence of 200-days SMA and last three weeks high placed at 11181 levels,” Dharmesh Shah, Head – Technical, ICICI, direct told Moneycontrol.

“Structurally, we believe the index is approaching its price-wise and time-wise maturity of correction. Since 2008, the average correction has been 14% and time-wise it has not corrected for more than 13 weeks in a row,” he said.

Shah further added that in the current scenario as the index has corrected 12 percent over the past 12 weeks, which makes us believe that the index would maintain the same rhythm.