Trade Setup: Market Bulls On The Ropes Amid Volatility; Nifty Struggles To Hold 25,000; What Lies Ahead?

The Nifty's performance this week has kept investors on edge, as the index struggled to maintain its position within a tight trading range of 24,700 to 25,250. Throughout the week, the bulls fought hard to push Nifty past the upper end of this 500-point range. However, as Friday draws near, the focus has shifted to defending the lower end of the range, as the index approaches the lows last seen on September 9.

On Thursday, Nifty fell for the third consecutive day, marking its fourth decline in the last five trading sessions. This dip brought the October 7 low of 24,694 back into the spotlight, putting the bulls under pressure to defend this critical level as the week closes. Friday's trading session will likely be pivotal, as a breach of this level could signal further downside for the index.

Thursday's session was marked by several negative factors that weighed heavily on the broader market sentiment. Bajaj Auto's quarterly results were a key disappointment, with the management's cautious commentary regarding festive season demand spurring a 12% drop in the stock. This marked the steepest single-day fall for Bajaj Auto since March 2020. Other auto stocks followed suit, adding to the market's woes.

The real estate and metals sectors also faced selling pressure, with the latter seeing a sharp decline except for NALCO, which managed to buck the trend. The Chinese housing market's struggles, highlighted by the country's housing minister, continued to cast a shadow over global metal demand, further dampening the mood in the market.

On a more positive note, the IT sector managed to avoid the broader market sell-off, but even that bright spot could fade on Friday. Infosys, which reported its quarterly earnings after market hours on Thursday, fell short of market expectations despite raising its revenue guidance. Infosys' US-listed shares (ADRs) dropped 3.5% following the earnings release, while Wipro's ADRs slid by 4%.

As the earnings season progresses, a slew of companies will be in the spotlight as their quarterly results continue to influence market direction. Some of the key stocks to watch heading into Friday's session include:

Infosys: The IT giant raised its constant currency revenue growth guidance for FY25 to 3.75%-4.5%, up from the previous estimate of 3%-4%. However, net profit missed expectations, and the street was unimpressed despite a 3.1% quarter-on-quarter revenue growth in constant currency terms. Infosys' ADRs fell post-results, adding to the sector's challenges.

Wipro: Wipro's Q2 results exceeded expectations, with a 0.6% sequential growth in constant currency revenue-its first growth after six consecutive quarters of decline. Additionally, the company reported its highest large deal bookings in 10 quarters, while its EBIT margin expanded for the third straight quarter. However, guidance for Q3 was a letdown, with expected revenue growth ranging from a decline of 2% to flat growth. The board's approval of a 1:1 bonus issue adds an interesting twist for investors.

Axis Bank: Axis Bank delivered a solid performance in Q2, with net interest income up by 9.5% year-on-year to Rs 13,483.2 crore, and net profit rising by 18% to Rs 6,917.6 crore. Gross NPAs improved slightly to 1.44%, while net NPAs remained stable at 0.34%. However, a 170% year-on-year increase in provisions raised concerns, as the bank grappled with increased credit costs.

LTIMindtree: The IT services company posted a strong Q2 performance, with net profit up 10.3% sequentially and revenue rising 3.2% to Rs 9,432.9 crore, both in line with expectations. The company also announced a dividend of Rs 20 per share.

Polycab: Polycab India's Q2 results were a mixed bag, with net profit up 3.6% year-on-year and revenue surging by 30.4% to Rs 5,498.4 crore. However, the company's margins were impacted by increased competitive intensity in its wires and cables business, which grew by 23%. The company's FMEG business grew by 18%, but higher advertising and employee expenses hurt profitability.

Tata Chemicals: Tata Chemicals faced a challenging quarter, with net profit plunging 46.1% and revenue remaining flat. The company's EBITDA margin shrank by 500 basis points to 15.5%, largely due to weaker demand for soda ash in the Americas and Europe. However, stable soda ash demand in India and improved performance compared to the previous quarter offered some respite.

Foreign Institutions Return as Sellers
One of the most concerning trends for the market has been the renewed selling by foreign institutional investors (FIIs). On Thursday, FIIs were heavy sellers in the cash market, with selling intensity picking up after a brief pause earlier in the week. FIIs have been net sellers in every trading session of October so far, with their cumulative selling outpacing the levels seen during the onset of the COVID-19 pandemic in March 2020.

Nifty Bank Struggles to Stay Afloat
While the Nifty Bank initially showed promise earlier in the week, closing above 51,900 on Tuesday, it has since reversed course, losing all the ground it gained over Monday and Tuesday. By Thursday, the index had fallen below both its 50-day and 100-day moving averages, slipping below the key 51,200 level during intraday trading.

Despite the recent two-day slump, the Nifty Bank remains marginally positive for the week. However, it will need to close above 51,172 on Friday to end the week in the green. Failure to do so could signal a further downside for banking stocks, which had previously shown signs of resilience amid the broader market sell-off.

Global Markets and Commodities Round-Up
On the global front, US stock futures were relatively flat following Thursday's session, with the Dow Jones Industrial Average hovering near its record closing high. Meanwhile, Netflix shares surged more than 4% in after-hours trading, buoyed by strong Q3 earnings and a 35% increase in ad-tier memberships.

European markets also ended Thursday on a positive note, with the pan-European Stoxx 600 index closing 0.84% higher. The European Central Bank's decision to cut interest rates for the third time this year, amid cooling inflation in the eurozone, provided a tailwind for equities.

In the commodities market, crude oil prices edged higher after four days of losses. West Texas Intermediate (WTI) futures settled at $70.67 per barrel, while Brent crude futures closed at $74.45 per barrel. Despite the modest gains, oil prices have faced headwinds from easing concerns over Middle East supply disruptions and forecasts of a potential surplus in 2025.

As the week comes to a close, investors will be monitoring Friday's trading session to see whether the Nifty bulls can defend the critical 24,694 level. A failure to do so could result in the index posting its first three-week losing streak of 2024.

In the meantime, corporate earnings will continue to drive stock-specific movements, with companies like Infosys, Wipro, Axis Bank, and Polycab in the spotlight. Additionally, the persistent selling by FIIs remains a key concern, as their sustained outflows could further weigh on market sentiment in the weeks ahead.