Weekly Big Picture – Geopolitical Tensions and SEBI Curbs on Alleged Shell Companies Put Market in Reverse Gear

MarketSmith India _ Weekly Big Picture.


Status: Uptrend Under Pressure

Current Outlook:

– Be cautious with any new purchases.

– Make a defensive game plan for your portfolio.

– Stay disciplined and exercise sound sell rules.


Five down days

Weekly Market Review

The benchmark indices ended the first day of the week on a subdued note as SEBI announced trading restrictions on 331 entities suspected to be shell companies. On Tuesday, the selling pressure accentuated further due to the SEBI action. On Wednesday, there was no respite for the market, as North Korea’s warning on a possible missile strike on the U.S. Pacific territory of Guam, spooked the global markets. The market weakness continued as the key indices continued to slide on Thursday and Friday. The broader indices had a devastating day, when the Nifty Midcap and the Smallcap indices tanked 3.20% and 4.62%, respectively, in yesterday’s session.

The Nifty started the week at 10,074.80 and traded in the range of 9,685.55-10,088.10. The index finally closed at 9,710.80, down 3.53% from last Friday’s close.

After opening at 32,377.80 points, the Sensex gave away 3.44% this week to close at 31,213.59. During the week, the Sensex traded in a range of 31,128.02-32,396.14.

The Nifty and the Sensex have picked up three and two distribution days, respectively, during the week. The distribution day count for the Nifty and the Sensex currently stand at 5.0 and 6.0, respectively. The headline indices are currently trading more than 4% off their all-time highs. In view of the deteriorating technical set-up, we changed the market status from “Confirmed Uptrend” to “Uptrend Under Pressure” yesterday.

The broader markets underperformed the frontline indices this week; the Nifty Midcap and Smallcap indices lost 5.47% and 6.52%, respectively.

The MarketSmith IND 47 Index, which lists the top 47 stocks in chart and fundamental characteristics, lost 5.84%, this week.

The sectoral chart is awash in a sea of red for the week, as none of the sectors managed to escape the brunt of the market sell-off. The top three losers this week were Nifty Realty, PSU Bank, and Pharma with declines of 9.16%, 8.57%, and 7.95%, respectively.

The first ever mid-term economic survey that was tabled in the Parliament today, has pointed to downside risks to the government’s earlier GDP growth forecast of 6.75-7.50% for FY 2018. Since the first volume of the survey was published in February this year, new factors such as real exchange rate appreciation, farm loan waivers, increasing stress in the power and telecom sectors, and transitional challenges from implementing the GST have imparted a deflationary bias to the economic activity in the country. The survey, authored by Chief Economic Adviser, Arvind Subramanian, has also mentioned that inflation was expected to remain below the RBI’s 4% target through the end of the fiscal year.

State Bank of India beat analysts’ expectations, as it reported a nearly three-fold jump in its consolidated profit at INR 3,032 crore for the quarter ending June 2017, but asset quality, including that of subsidiaries, continued to slip. Gross non-performing assets increased 86 basis points to 9.97%, and net NPA rose 78 basis points to 5.97% on a sequential basis. The growth in profit was driven by low base due to higher provisions in Q1 FY 2017 and partly by higher other income despite a sharp rise in tax expenses.

The following events could serve as market movers in the coming week:

– Release of the Consumer Price Index inflation data for the month of July on August 14.

– Minutes of the U.S. Federal Open Market Committee meeting in July 2017 to be released on August 16.

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