Trade Setup: Market Struggles Despite Gains By Heavyweights; What Do The Cues Indicate For Today?

Monday's trading session on Dalal Street presented a curious paradox-despite substantial gains from two of Nifty's biggest constituents, HDFC Bank and Reliance Industries, the market closed in the red. For market enthusiasts, this was difficult to comprehend, given that these two heavyweights are known for driving the indices upward. However, the lack of follow-up buying, coupled with a poor earnings season, led to a lacklustre performance.

On Friday, the markets rebounded sharply, with the Nifty index reaching 24,564. Hopes were high that this momentum would carry forward into Monday, especially with HDFC Bank and Reliance Industries posting healthy gains. The two companies collectively added 93 points to the Nifty, yet the index ended in the red. The reasons behind this fall lie in the offsetting losses contributed by other major players in the market.

Kotak Mahindra Bank, Infosys, IndusInd Bank, ICICI Bank, and Tata Consumer Products formed a team of major losers that neutralized the gains made by the top performers. This led to the index's overall decline.

What would have been more alarming for bulls is the market's extreme reaction to earnings reports. In a market with a "zero" margin for error, even the slightest earnings miss resulted in sharp declines. Tata Consumer Products, for instance, saw its shares plummet by as much as 10% before closing 7% lower. Kotak Mahindra Bank also experienced a sharp drop of 6% during the session, before settling 4.5% lower.

Several other companies followed a similar trend. IndiaMART was one of the worst performers, seeing a 17% decline. RBL Bank shed 13.5%, Mastek lost 6%, while CG Power and Gravita India both closed 6% lower.

While the benchmark indices grabbed headlines, the broader market was quietly suffering. The Midcap index has declined by over 5% in the last month, raising concerns about the health of mid-cap stocks. Out of the 100 stocks in the Nifty Midcap index, 78 have delivered negative returns over the past month.

The sell-off in midcap stocks has placed a spotlight on a correction taking place in the broader market. Although the overall decline isn't yet alarming, especially considering the index's strong performance over the last 12 to 18 months, the sharp fall in midcap stocks should concern bulls. With earnings season just beginning, the potential for further sell-offs in the broader market remains a risk.

The focus now shifts to Tuesday's trading session, which is expected to see several key earnings results. Bajaj Housing Finance is among the companies scheduled to report, and it will be joined by a host of broader market companies, including Adani Energy Solutions, Adani Green, Amber Enterprises, Can Fin Homes, and Chennai Petro. ICICI Prudential, Indus Towers, IIFL Securities, M&M Financial, Persistent Systems, Coforge, Shoppers Stop, SRF, Varun Beverages, Zensar Technologies, Olectra Greentech, and Zomato are also on the list of companies reporting results.

The results of these companies, particularly Bajaj Finance, will be closely watched by investors, given their potential to influence market sentiment. Bajaj Finance, a key Nifty constituent, will be under the scanner, especially after a tough Monday for financial stocks like Kotak Mahindra Bank and ICICI Bank.

Several stocks were monitored during Monday's trading session, including Bajaj Housing Finance and Jana Small Finance Bank. Bajaj Housing Finance reported a net profit increase of 21% to Rs 545.6 crore, with revenue up 21.1% to ₹2,410.2 crore. The company's disbursals came in at Rs 12,014 crore, representing an 11.5% decline year-on-year but flat sequentially. Net Interest Income was up 13% from the previous year to Rs 713.3 crore.

Jana Small Finance Bank, on the other hand, reported positive earnings with disbursements rising 3.3% sequentially. Its net profit jumped 40% to Rs 171.8 crore, though provisions increased by 31% year-on-year. These results helped Jana Small Finance Bank remain steady in a volatile market.

Other key names like City Union Bank and Mahindra Logistics also delivered their earnings on Monday. City Union Bank reported an 8.2% rise in Net Interest Income and a slight increase in net profit by 1.6%. However, its Gross NPA remained high at 3.54%. Mahindra Logistics narrowed its losses to Rs 9.6 crore, driven by strong growth in its 3PL contract logistics and last-mile delivery segments.

The futures and options (F&O) market painted an interesting picture on Monday. Nifty 50's October futures saw a 2.7% drop in open interest, shedding 3.51 lakh shares. Despite this, Nifty Bank futures dropped only 2%, indicating that the bank index is in a relatively stronger position compared to Nifty 50. The Put-Call Ratio for Nifty 50 decreased to 0.81 from 0.93, suggesting bearish sentiment creeping into the market.

Several stocks entered the F&O ban list, including Manappuram Finance, Piramal Enterprises, RBL Bank, IndiaMART, and Hindustan Copper. Meanwhile, NALCO and Tata Chemicals were removed from the ban list, offering a sliver of relief for traders interested in these stocks.

Global Market Cues
Global markets did little to inspire confidence on Monday. US stock futures remained flat in overnight trading, indicating a muted start for Tuesday's session. The Dow Jones Industrial Average fell over 344 points, or 0.8%, snapping a three-day winning streak. The S&P 500 declined by 0.2%, while the Nasdaq Composite gained 0.3%. Meanwhile, the yield on the 10-year US Treasury note surged nearly 12 basis points to 4.19%, its highest level since late July.

In Europe, the pan-European Stoxx 600 fell by 0.7%, with insurance stocks leading the losses, while oil and gas stocks managed to eke out a gain. The Middle East conflict continues to weigh on European sentiment, with investors awaiting key corporate earnings.

Oil prices fell on Tuesday, paring Monday's nearly 2% rise as the US pushed for a ceasefire in the Middle East. Brent crude futures for December delivery were down 26 cents, or 0.3%, while US West Texas Intermediate crude futures were flat.

In Asia, markets slipped in early trading. Australia's S&P/ASX 200 fell 1.36%, South Korea's Kospi dropped 1.21%, and Japan's Nikkei 225 lost 1.34%. The Hang Seng index in Hong Kong and China's CSI 300 also remained weak.