Trade Setup: Market Carnage Intensifies, Sensex, Nifty, Midcap Plunge Amid Earnings Miss; Triggers Today?

Tuesday's trading session was a nightmare for investors, as the Indian stock market experienced a sharp sell-off, marking its most brutal decline in recent weeks. The question of whether bulls would defend the Nifty's critical low of 24,564 was decisively answered with a resounding no. Monday's volatility gave way to Tuesday's relentless plunge, with the Nifty and broader markets breaking key support levels and turning every intraday bounce into a selling opportunity.

In just a month, the Nifty 50 has fallen nearly 7% from its record high of 26,277, wiping out close to 2,000 points. On Tuesday, the Nifty dipped to an intraday low of 24,445 before closing at 24,475, merely 30 points above the day's low. This close below the critical 24,500 level sent a message to market bulls: the bears are in control. ICICI Bank was the sole index constituent to post gains.

While the Nifty 50's fall was dramatic, the carnage in the broader markets was even more pronounced. The Midcap index, which had reached its peak on September 24, has now lost 7%, mirroring the Nifty's decline. However, the ferocity of the Midcap drop was far more severe, with over 50% of the near-5,000-point plunge occurring in just the last two sessions. At least 35 stocks on the Midcap index have declined 10% or more over the past month. Shares like Vodafone Idea and Cochin Shipyard have been halved from their respective peaks.

The Smallcap index, which had displayed some resilience amidst the Midcap slide, succumbed to the selling pressure on Tuesday, declining by 4% in a single session. The combined two-day sell-off resulted in a staggering Rs 13.7 lakh crore erosion of investor wealth. Apart from Dr. Lal Pathlabs, every single stock in the Smallcap index ended the day in the red.

Tuesday's session also saw extreme reactions to earnings results, with most earnings misses being met with brutal punishment. Supreme Industries and Jana Small Finance Bank both witnessed sharp declines of 9%. In contrast, City Union Bank stood out as one of the few bright spots in an otherwise bleak market, closing 12% higher.

The pattern of earnings-driven volatility is expected to continue into Wednesday, as several prominent companies such as Bajaj Finance, Amber Enterprises, Can Fin Homes, ICICI Prudential, M&M Finance, Persistent Systems, and Zomato are slated to report their quarterly results. Investors will be watching how these stocks react in the wake of the market's ongoing turmoil.

Wednesday's session promises multiple earnings reports across sectors, with a host of companies set to announce their quarterly earnings. Major names like Hindustan Unilever, Bajaj Finserv, Godrej Properties, Dr Lal Pathlabs, SBI Life Insurance, and United Spirits will reveal their financial results.

Investors will also be eyeing the Nifty Bank index, which is due for its weekly expiry on Wednesday. The Financial Services expiry has already contributed to the volatility seen in the banking sector. Analysts are now eyeing 51,000 as the critical level for the Nifty Bank to defend. Should this level be breached, a further downside could be in store, adding to the market's existing woes.

Foreign Institutional Investors (FIIs) continued their selling spree, offloading significant positions in the cash market. This has extended their October selling to more than $10 billion, applying additional pressure on the market. In contrast, Domestic Institutional Investors (DIIs) have been buying, outpacing their foreign counterparts for the second consecutive day. Despite the DIIs' efforts, their buying was not enough to stem the tide of overall selling.

On the derivatives front, the Futures & Options (F&O) market provided important cues for traders. The Nifty 50's October futures saw a 1.7% rise in Open Interest, with 2.16 lakh shares added, indicating that traders are positioning themselves for more volatility ahead. The futures are now trading at a premium of 66.2 points, up from 7.7 points earlier. The Nifty Bank's October futures also witnessed a sharp rise in Open Interest, increasing by 3.3% or 84,045 shares.

In terms of the Put-Call ratio, the Nifty 50's ratio dropped from 0.93 to 0.73, indicating a bearish sentiment in the options market. On the Call side, strikes between 24,500 and 24,700 have seen increased Open Interest ahead of Thursday's weekly expiry, suggesting that traders expect resistance around these levels. On the Put side, strikes between 24,200 and 24,400 have seen notable Open Interest additions, pointing to potential support levels around these zones.

Several stocks, including Granules India, IDFC First Bank, SAIL, and Hindustan Copper, have exited the F&O ban list, while companies like Aarti Industries, Birlasoft, Bandhan Bank, Piramal Enterprises, and PNB remain in the ban.

Global Market Cues
After the regular trading session, US stock futures extended the day's losses. The S&P 500 futures dropped nearly 0.1%, while Dow futures slid by 126 points (0.3%), and Nasdaq 100 futures fell by 0.1%. These declines were exacerbated by developments in the US market, where major companies like McDonald's and Starbucks faced significant after-hours declines.

McDonald's stock plunged 6% after an E. coli outbreak linked to its Quarter Pounder burgers led to hospitalizations and a death. Starbucks also suffered, falling 4% after issuing disappointing preliminary quarterly results.

European markets also struggled, with the regional Stoxx 600 index closing down by 0.2%. Most sectors were in negative territory as investors weighed earnings results against the ongoing uncertainty around US interest rates. The travel and leisure sectors, along with technology stocks, provided some relief, posting marginal gains.

Meanwhile, Asia-Pacific markets exhibited mixed performance. Japan's Nikkei 225 traded flat, while the broader Topix index edged up by 0.18%. South Korea's Kospi rose 0.15%, though the smallcap Kosdaq dropped 1.16%. In Australia, the S&P/ASX 200 opened 0.13% higher, while Hong Kong's Hang Seng index and China's CSI 300 index saw marginal increases.

Oil prices dipped on Wednesday following industry data that revealed a more significant-than-expected increase in US crude inventories. Brent crude futures fell 31 cents to $75.73 a barrel, while US West Texas Intermediate futures dropped 32 cents to $71.42 per barrel. This decline came after two days of rising crude prices, driven by ongoing conflicts in the Middle East.

The US Treasury market also continued to exert pressure on equities. The yield on the 10-year Treasury rose to 4.206%, a level not seen in three months. Federal Reserve officials cautioned against any hasty interest rate cuts, adding to the market's apprehension. Meanwhile, the 2-year Treasury yield held steady at 4.032%.

On the domestic front, GIFT Nifty was seen trading flat against Nifty Futures Tuesday close, indicating a muted start for the Indian market.