Market in correction; inflation rises, FII selling continues

The prevailing sentiment in the market is one of caution, with many investors expecting a correction. The pressing question is whether the market can recover from the potential onset of a bear phase. US and European markets were lower yesterday, and Asian markets are also seeing declines today, suggesting a negative trend across global markets.

Foreign investors continue to sell off their holdings, which is adding pressure. Meanwhile, company earnings reports are disappointing, with many showing losses. On top of this, retail inflation has surpassed the Reserve Bank of India's (RBI) tolerance level of 6%, effectively dashing hopes for an interest rate cut in the near future. The expectation is now that any rate reductions will likely come only after February.

There is also speculation that the rise in the dollar index could push the dollar to around ₹84.50 this month. The increase in food prices, particularly vegetables, has been sharp, with inflation exceeding 10%. Retail price inflation has reached 6.2%, up from 5.5% last month, forcing the RBI to reconsider its inflation projections for the third quarter. Even if vegetable price inflation drops in November, it's expected that retail inflation will not ease significantly.

On the industrial side, the index of industrial production rose by 3.1% in September, following an unexpected contraction in August. Although this is encouraging, it still falls short of the average 4% growth seen in recent months. Meanwhile, Bain Capital, an American investment firm, has expressed interest in acquiring Manappuram Finance, a development that could influence market movements today.

The derivatives market saw the Gift Nifty close at 23,872 on Tuesday, with a slight uptick to 23,884 this morning. This suggests that the Indian market could open lower today. In the US, markets took a brief pause, with major indices closing lower. Retail price data for October will be released today, and if prices have increased, the anticipated rate cut in December might be delayed further.

There is also growing speculation about who will be part of President Trump's upcoming cabinet. It’s suggested that Florida Senator Marco Rubio could be named Secretary of State, while Representative Mike Waltz, a staunch China critic and advocate for closer defence ties with India, might become National Security Advisor.

Global markets

The US stock market showed signs of weakness on Tuesday, with the Dow Jones Industrial Average falling 382.15 points (0.86%), closing at 43,910.98. The S&P 500 was down by 17.36 points (0.29%) at 5,983.99, while the Nasdaq dropped by 17.36 points (0.09%), closing at 19,281.40. US futures are flat today, with the Dow down 0.09%, the S&P down 0.13%, and the Nasdaq falling 0.20%. The US 10-year Treasury yield dropped to 4.431%, indicating that high interest rates will likely persist.

European markets also saw sharp declines on Tuesday, with major indices falling by more than 2%. Looking ahead, parliamentary elections in Germany are scheduled for February.

Asian markets are experiencing further weakness today, with Japan’s Nikkei index falling 1%, South Korea’s index down by 1.1%, and Australia’s market declining by 1.4%.

Indian markets

There are increasing signs that the Indian market is headed for a correction, which could lead to a drop of over 10% from recent highs. A decline of more than 20% would signal a bear market. As of yesterday, the Nifty 50 index was down 8.13% from 26,277.4 on September 27. Ten out of the 17 sectoral indices on the NSE are either in correction or nearing it, with sectors such as Media, Auto, Realty, Energy, and Central PSE leading the decline. Stocks like Tata Motors, Hero, Bajaj Auto, ONGC, Tata Steel, Trent, and Reliance are also facing significant losses.

Foreign selling and disappointing corporate earnings in the second quarter have pushed the market lower, while rising inflation has diminished hopes of an interest rate cut. The Indian market opened higher yesterday but turned lower by the afternoon, closing down more than 1% due to sustained selling pressure. The auto, banking, finance, FMCG, metal, pharma, healthcare, consumer durables, and oil and gas sectors all experienced losses. Mid-cap and small-cap stocks were hit harder, with the broader market also trending lower. On the BSE, 1,181 stocks advanced, while 2,791 fell. On the NSE, 678 stocks were up, and 2,134 declined.

The Nifty closed down 257.85 points (1.07%) at 23,883.45, and the Sensex lost 820.97 points (1.03%) to end at 78,675.18. The Bank Nifty fell by 1.39% (718.95 points), closing at 51,157.80. The mid-cap index dropped 1.07%, closing at 55,257.50, and the small-cap index fell 1.28%, finishing at 17,991.60.

In stock-specific movements, Federal Bank reached a record high of ₹209.77, closing at ₹206.30. Kitex Garments rose to ₹648.50 before settling at ₹611. Cochin Shipyard closed down 2.03% at ₹1,365, and Muthoot Finance ended 1.49% lower. Manappuram Finance saw some fluctuation, with its stock closing 0.63% higher following reports of potential acquisition by Bain Capital, though the company’s CEO, V.P. Nandakumar, denied the claims.

Stocks of Jyoti Labs, Britannia, and BASF saw significant declines, dropping 8.08%, 7.3%, and 14.4%, respectively, after posting poor second-quarter results. Akums Drugs shares fell by 10% on lowered earnings expectations. Meanwhile, Newland Labs surged by 11%, following the failure of a competing drug trial.

Foreign investors continued to sell aggressively, with a net outflow of ₹3,024.31 crore in the cash market on Tuesday. Domestic funds and institutions bought ₹1,854.46 crore in shares.

Swiggy, which listed its IPO last week, will debut today, but no significant gains are expected from the listing.

The Nifty's support level is at 23,800, while resistance is seen at 24,200. The market may find support at 23,835 and 23,740, with barriers at 24,140 and 24,235.

Gold update

On the commodities front, gold prices fell below $2,600 yesterday, closing at $2,598.80, down 0.81% ($21.30 per ounce), mainly due to the stronger dollar. This morning, the price rebounded slightly to $2,607. In Kerala, the price of gold fell by ₹1,080, ending at ₹56,680. Silver prices rose marginally to $30.68 an ounce.

The dollar continued to rise, with the dollar index increasing by 0.52% to close at 106.02. This morning, it was slightly lower at 105.96. The rupee struggled to hold its ground, hitting a record low of ₹84.41 against the dollar before closing at ₹84.39. It is expected that the rupee could weaken further to around ₹84.50-84.60 this month.

Crude oil prices eased slightly, with Brent crude settling at $71.76, and WTI crude at $68.03. Industrial metals faced further losses, with copper down 2.02%, aluminum falling by 0.90%, and other metals such as lead, nickel, zinc, and tin also seeing declines.

Cryptocurrencies showed a marginal uptick, with Bitcoin briefly touching a record high of $90,036.17 before falling back to $88,500. Ether stood at $3,280.

Market indicators 

- Sensex: 78,675.18 (-1.03%)
- Nifty50: 23,883.50 (-1.07%)
- Bank Nifty: 51,157.80 (-1.39%)
- Mid-Cap 100: 55,257.50 (-1.07%)
- Small-Cap 100: 17,991.60 (-1.28%)
- Dow Jones: 43,910.98 (-0.86%)
- S&P 500: 5,983.99 (-0.29%)
- Nasdaq: 19,281.40 (-0.09%)
- Dollar: ₹84.39
- Dollar Index: 106.02 (+0.48)
- Gold (oz): $2,598.80 (-$21.30)
- Gold (Pavan): ₹56,680 (-₹1,080)
- Crude (Brent): $71.76 (-$0.18)