Taking Stock: Sensex, Nifty erase gains to close in the red; what should investors do?

Indian markets wiped out the day’s gains to close in the red on May 11 despite positive trend in other Asian markets.

The S&P BSE Sensex took a knock of more than 700 points from the highs, while the Nifty50 failed to hold on to the 9250-level towards the close.

The final tally on D-Street: the Sensex fell 81 points to 31,561 while the Nifty50 closed 12 points lower at 9,239.

Sectorally, action was seen in the auto, telecom, consumer discretionary, metals, and IT space while profit-taking was visible in Bankex, finance, power, FMCG and healthcare stocks.

Broader markets outperformed, as the S&P BSE Midcap index rose 0.65 percent. The BSE Smallcap index fell 0.1 percent.

Top Nifty gainers included Bajaj Auto, Maruti Suzuki, Tata Motors, and Hero MotoCorp, which rose more than 6 percent each.

Top Nifty losers included Kotak Bank, Dr Reddy’s Laboratories, BPCL and ICICI Bank.

What should investors do?

Indian markets fell despite opening with a strong gap on the upside but a reversal of trend in financials on worries about asset quality and rising bond yields, warnings of a resurgence in infections in other parts of the world and profit-booking at higher levels tripped investors.

The benchmark 10-year bond yield rose 27 basis points to 6.24% in opening deals following the government’s decision to sharply increase market borrowing amid a major hit to the economy and public finances from the coronavirus pandemic, a Reuters report said.

“The benchmark indices failed to sustain early gains and ended with a marginal loss after profit booking in the afternoon erased all the intraday gains. Automobiles, airline companies did well on news and expectation of restart of operations,” Deepak Jasani, Head Retail Research, HDFC Securities, told Moneycontrol.

“Materials stocks (incl Metals and Cement) also ran up. Financials fell on worries about asset quality and rising bond yields.” he said.

The Nifty50 has witnessed selling pressure above 9,300 in nine of the last 10 trading sessions, which suggests that there is a crucial resistance which the index has to breach convincingly for markets to move higher.

“Unless we are not well above the 9,450-mark or below the 9,100 levels, we won't see a significant move. It will continue to be choppy, which is a feast for option writers who are trading for the May 14 expiry,” said Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments.

Investors are advised to trade cautiously, as a breakdown in financials could lead to a selling pressure on the Nifty as well.

“It’s almost a week now that the  Nifty has been hovering in a narrow range of 9,200-9,400 zone and continued weakness in the banking pack is pointing towards a breakdown soon,” Ajit Mishra, VP-Research, Religare Broking Ltd, told Moneycontrol.

“However, stocks, on the other hand, may continue to see erratic swings on both sides, in reaction to the earnings announcement. Traders should plan their positions accordingly.”

Stocks & sectors

Sectorally, the S&P BSE Bankex fell 2.3 percent, followed by the S&P BSE Finance index which was down 1.7 percent and the S&P BSE Power index slipepd 0.49 percent.

Action was seen in the S&P BSE Auto index which rose 4.2 percent, followed by the S&P BSE Telecom index which was up 1.8 percent, and the S&P BSE Metal index rose 1.4 percent.

A volume spike of more than 100 percent was seen in stocks such as Vedanta, Federal Bank, Bajaj Auto, Tata Motors, IGL,and Godrej Properties.

Long Buildup was seen in stocks like Godrej Properties, Chola Finance, Bharat Forge, and Balkrishna Industries.

Short Buildup was seen in stocks like Max Financial Services, HUL, SBI Life, Siemens, and ICICI Bank.

More than 140 stocks on the BSE hit a 52-week low. These included GE Power, AU Small Finance Bank, Kajaria Ceramic, Cyient, SBI, DB Corp and DCB Bank.

Stocks in news

Financials fell on worries about asset quality and rising bond yields. The fall in the index was led by losses in ICICI Bank, Kotak Bank, RBL Bank, and IndusInd Bank.

ICICI Bank | The share was down over 5 percent and was one of the top index losers. The bank set aside Rs 2,725 crore as specific provisions towards the impact of the COVID-19 induced lockdown. Provisioning cost was higher to Rs 5,967 crore, up 9.5 percent YoY and 186 percent, sequentially.

VIP Industries | The share price jumped over 5 percent after ace investor Rakesh Jhunjhunwala raised his stake by 2.85 lakh shares during the January-March quarter of FY20.

Inox Wind | The stock rose 4 percent after the company won an order from Continuum Power Trading.

Auto stocks rally | Shares gained up to 6 percent with Bajaj Auto, Tata Motors, Maruti Suzuki and Hero MotoCorp being the top gainers. After being shut for more than 40 days, two-wheeler, car and commercial vehicle showrooms are finally beginning to open in areas with fewer COVID-19 cases.

IRCTC | The share hit 5 percent upper circuit as online bookings for passenger trains restarted.

HDFC AMC | The share price was down almost 3 percent after weak earnings in Q4FY20 following a decline in equity markets.

Dr Reddy's Labs | The stock slipped 3 percent after it had to recall 1,752 bottles of generic heartburn medicine in the US after the American health regulator found quality issues .

Airline stocks gain | The share price of Interglobe Aviation and SpiceJet jumped over 4 percent after reports said that the government was likely to allow airlines to resume local operations of by May 18.

Technical View

The Nifty formed a bearish candle on daily charts. The index breached intraday low of 9,238 on May 8 to make a new low of 9,221 on May 11 before bouncing back

The bulls appear to be defending the psychological support of 9,200 for the last five trading sessions.

A close examination of the last four trading sessions is revealing that the Nifty is taking support of its 20-day simple moving average whose value is around 9236, say experts.

Hence there is some for the bulls as long as the index sustains above 9,200 on the closing basis and a pullback towards 9,500 is possible.

A close below 9,200 can trigger a fresh bout of selling pressure, with an initial target of 8,900.