Trade Setup: Market Tumbles In The Last Week Of May; Nifty Wipes Out Gains After A 5-Day Slump

The Nifty 50 index has seen a reversal of fortune over the past week. From enjoying a robust 500-point gain in the May Futures and Options (F&O) series, the index plunged into a near-100-point loss, erasing all its previous gains and then some. The past five trading sessions have marked the longest losing streak for the Nifty in seven months, culminating in a nearly 700-point drop from Monday's record high of 23,110.

The decline reached a critical point on Thursday, the monthly expiry day for the Nifty, where the index flirted dangerously close to the 22,400 mark before managing a slight recovery from an intraday low of 22,417. This level is the lowest the Nifty has seen since May 21. A handful of major companies, including Reliance Industries, Tata Steel, ITC, and TCS, were responsible for more than half of the index's losses on Thursday alone.

Technically, the Nifty's performance has been dismal. The index has consistently registered lower highs and lower lows over the past four trading sessions, painting a bleak picture for investors. The steady downward trend has also had a broader impact on the market. Both the Midcap and Smallcap indices fell over 1.5%, with the Metals and IT sectors being the biggest losers. Notably, the Nifty IT index recorded its third consecutive day of declines.

As of Thursday's close, the Nifty has sunk to its lowest level in two weeks, down 1.7% for the week, effectively ending a two-week winning streak. This downturn has been exacerbated by foreign institutional investors (FIIs) remaining net sellers, while domestic institutional investors (DIIs) have been net buyers in the cash market. Significant block deals in companies like KFin Tech, RR Kabel, and IRB Infra also played a role in the day's financial dynamics.

Despite the widespread market turmoil, the Nifty Bank index has shown some resilience. Along with the Nifty Media index, it ended the day in positive territory. At one point during the trading session, the Nifty Bank index even briefly crossed the 49,000 mark, although it couldn't sustain that level. HDFC Bank and ICICI Bank, which were among the major laggards on Wednesday, rebounded to become top performers on Thursday.

On a weekly basis, the Nifty Bank has outperformed most sectors, registering a marginal decline of just 0.3%. This performance stands in stark contrast to the broader market's struggles and highlights the banking sector's relative strength in these turbulent times.

The rollover statistics for the Nifty 50 at the end of the May series showed a 72% rollover rate, reflecting a significant degree of continuity into the June series. Additionally, Aditya Birla Fashion and Retail, Hindustan Copper, Vodafone Idea, and GMR Airports have all exited the F&O ban list, which could indicate a potential easing of some selling pressure in these stocks.

The Nifty 50's Put-Call Ratio (PCR) has moved up to 1.11 from a previous 0.79, suggesting a shift in sentiment. A higher PCR typically indicates that more puts (options to sell) are being bought relative to calls (options to buy), often signalling bearish sentiment among traders.

For the upcoming June 6 expiry, there has been notable Open Interest (OI) addition in the Nifty 50 strikes between 22,500 and 23,000 on the Call side. This suggests that traders are positioning for resistance within this range. On the Put side, strikes between 22,400 and 22,600 have seen OI additions, indicating that traders are also hedging for support levels around these marks.

The recent performance of the Nifty 50 highlights the market's vulnerability to swift and severe corrections. Investors are keeping a close eye on global cues, domestic economic indicators, and sector-specific developments to gauge the market's direction. The banking sector's relative strength could be a critical factor in providing some stability, but the overall sentiment remains cautious.

As traders brace for the first expiry of the June series, market participants will be watching the Open Interest data and the Put-Call Ratio for further indications of market sentiment and potential turning points. The ability of the Nifty to hold key support levels will be crucial in determining whether this recent slump is a temporary setback or the beginning of a more prolonged downturn.

The past week has been a reminder of the volatility inherent in equity markets. With significant losses wiping out earlier gains, investors are left grappling with uncertainty, awaiting clearer signals from the broader economic landscape and corporate earnings announcements. The coming days will be pivotal in setting the tone for the Nifty and the broader market trajectory.

As investors prepare for Friday's trading session, several key stocks have emerged as ones to watch, each with developments and performance metrics that could influence market dynamics. Here's a detailed look at these stocks and the factors driving their potential movements.

Apollo Hospitals: Apollo Hospitals has delivered a strong performance, with its EBITDA margin and net profit exceeding estimates. The EBITDA margin stands at 13%, a positive indicator. The hospital's occupancy rate slightly decreased to 65% from 66% in December, but average revenue per occupied bed saw a robust increase of 5% sequentially and 12% year-on-year, reaching Rs 59,523. Hospital revenue surged by 16%, and the company expects to recoup healthcare margins by FY25. Additionally, Apollo's offline pharmacy distribution business grew by 12%, while its online pharmacy business, Apollo 24/7, saw a 20% increase in revenue. The digital health and pharmacy EBIT loss narrowed substantially to Rs 60 lakh from Rs 10.4 crore, signalling improved efficiency and cost management.

Muthoot Finance: Muthoot Finance has reported impressive financials with a net interest income of Rs 2,134.8 crore and a net profit of Rs 1,056.3 crore. The company experienced a 20% year-on-year and 6.5% sequential growth in assets under management (AUM), with gold AUM specifically rising by 17.8% year-on-year and 5.3% sequentially to Rs 72,879 crore. The average ticket size for gold loans increased by 10.4% year-on-year. Although the net interest margin (NIM) narrowed to 11.62% from 12.26% last year, it remained higher than the 10.88% recorded in December. The reduction in gross NPA to 3.28% from 3.62% and net NPA to 2.05% from 2.41% indicates improved asset quality.

Bharat Dynamics: Bharat Dynamics has showcased growth, with a net profit up 89% year-on-year to Rs 288.8 crore and revenue increasing by 7% to Rs 854.1 crore. The company's EBITDA rose by 72.6% to Rs 316.5 crore, and the EBITDA margin expanded to 37.1% from 23% last year.

Welspun Corp: Welspun Corp has seen its net profit increase by 19.7% to Rs 287.3 crore, with revenue up 9.6% to Rs 4,461.2 crore. However, the company's EBITDA declined by 21.9% to Rs 330.2 crore, resulting in an EBITDA margin of 7.4% compared to 10.3% last year. Despite this, Welspun Corp remains optimistic about growth prospects in its core segments, including oil & gas, water, infrastructure, defence, power, and plastics. The company boasts a significant order book across various segments and has provided a positive outlook for FY25 with topline guidance of Rs 17,000 crore, EBITDA of Rs 1,700 crore, and a Return on Capital Employed (ROCE) of 20%. Net debt reduction to Rs 387 crore from Rs 1,138 crore last year is also a positive sign.

Snowman Logistics: Snowman Logistics reported a 58.8% drop in net profit to Rs 2.1 crore despite a 12.6% increase in revenue to Rs 126.5 crore. EBITDA rose by 4.5% to Rs 26.9 crore, and the EBITDA margin improved to 21.3% from 19.2% last year. The management is optimistic about crossing Rs 500 crore in revenue and Rs 100 crore in EBITDA, with construction projects in Kolkata and Lucknow on track to become operational in Q2 of FY25.

Praj Industries: Praj Industries reported a 4.3% increase in net profit to Rs 91.9 crore, with revenue rising by 1.5% to Rs 1,018.6 crore. EBITDA jumped by 20.9% to Rs 130.8 crore, and the EBITDA margin improved to 12.8% from 10.8%. The company secured orders worth Rs 924 crore during the quarter, and its consolidated order backlog as of March 31, 2024, stood at Rs 3,528 crore, up from Rs 3,414 crore in FY23. The international order book saw a 62% year-on-year increase, reflecting strong global demand.

Jio Financial Services: Jio Financial Services has launched the Beta version of its Jio Finance app, integrating digital banking, UPI transactions, bill settlements, and insurance advisory. This move positions Jio Financial as a significant player in the digital financial services sector.

Insurance Companies: Insurance companies are seeking relief from the GST Council, proposing a reduction in GST on insurance products from 18% to 12%. Insurers argue that the high GST rate is deterring people from opting for life insurance. They have also requested a reduction in GST for health insurance products and a zero-GST regime if the insurance burden is shared via sub-contracting or outsourcing.

Suven Pharma: Suven Pharma faced a challenging FY24 with a 56.9% decline in net profit to Rs 53.4 crore and a 31.5% drop in revenue to Rs 252.9 crore. EBITDA fell by 57.4% to Rs 73.3 crore, with the EBITDA margin decreasing to 29% from 46.5%. Management cited a "perfect storm" of global slowdown, agricultural chemical destocking, COVID-19 effects, and commodity pricing issues. However, they expect a recovery in H2FY25 as most headwinds have passed, except for chemical destocking.

Mrs. Bectors Food: Mrs. Bectors Food reported a 17.5% increase in revenue to Rs 406.4 crore and a 21.3% rise in net profit to Rs 33.6 crore. EBITDA grew by 22% to Rs 58.7 crore, with the EBITDA margin improving to 14.4% from 13.9%.

Bharat Rasayan: Bharat Rasayan posted a net profit of Rs 67.1 crore, up from Rs 30.3 crore, with a 1.2% increase in revenue to Rs 309.6 crore. EBITDA grew by 17.7% to Rs 69.3 crore, and the EBITDA margin improved to 22.4% from 19.3%.

Gujarat Alkalies: Gujarat Alkalies reported a net loss of Rs 46.2 crore compared to a net profit of Rs 71 crore last year. Revenue fell by 12% to Rs 1,001.6 crore, and EBITDA dropped by 88% to Rs 28.8 crore, with the EBITDA margin shrinking to 2.9% from 21.3%.

KIMS: KIMS announced that its arm signed a lease agreement to set up a super specialty hospital in Bengaluru at the Peoples Education Society Campus, Electronic City, signalling an expansion in its healthcare services.

Mold-Tek Packaging: Mold-Tek Packaging's net profit fell by 21.7% to Rs 18 crore, with revenue down by 4.2% to Rs 176.9 crore. EBITDA remained flat at Rs 35.5 crore, and the EBITDA margin increased slightly to 20.1% from 19.3%. Sales volume grew by 4.8%, and the company was selected as a preferred supplier for Grasim Paints at three of six locations.

Global Market Cues
US stock futures edged lower Thursday night as investors grappled with a slew of corporate earnings reports and awaited a key inflation report. This movement capped a week where Wall Street, after a remarkable month, was poised to end on a losing note.

Dow Jones Industrial Average futures dipped by 42 points, or 0.11%. Meanwhile, S&P 500 futures and Nasdaq 100 futures fell by 0.15% and 0.20%, respectively. This decline followed a losing session for the major benchmarks on Thursday. The Dow Jones Industrial Average closed more than 300 points lower, a 0.9% drop after Salesforce's earnings missed revenue expectations. Similarly, the S&P 500 dropped 0.6%, and the Nasdaq Composite fell 1.1%.

This downtrend comes during a holiday-shortened trading week. Both the S&P 500 and Nasdaq Composite were on track to end their five-week winning streaks, while the Dow was heading for its second consecutive week of losses, largely influenced by rising Treasury yields impacting investor sentiment.

On Thursday, US Treasury yields retreated as investors anticipated key economic data and evaluated the economic landscape. The 10-year Treasury yield fell by over 7 basis points to 4.55%, dropping below the 4.6% threshold it had surpassed on Wednesday for the first time in a month. The 2-year Treasury yield also declined by more than 5 basis points, settling at 4.929%.

Across the Atlantic, European stocks managed to close higher on Thursday, reversing a negative trend earlier in the week as global markets struggled with rising bond yields. The regional Stoxx 600 index ended the day 0.63% higher, rebounding from its worst sessions of the month and its lowest close since May 8.

In the commodities market, US crude oil prices fell more than 1% on Thursday, on track for their worst month of the year amid weak gasoline demand at the start of the summer driving season. US crude oil has dropped 4.9% in May, marking its poorest performance since December. Brent crude has lost 6.8% this month, positioning the global benchmark for its first negative month in five.

West Texas Intermediate (WTI) July contract at $77.91 a barrel, down $1.32, or 1.67%. Year-to-date, US oil is up 8.74%. Brent July contract at $81.86 a barrel, down $1.74, or 2.08%. Year-to-date, the global benchmark is up 6.2%. RBOB Gasoline June contract at $2.40 per gallon, down 2.43%. Year-to-date, gasoline futures are up 14.3%. Natural Gas July contract at $2.57 per thousand cubic feet, down 3.53%. Year-to-date, natural gas is up 2.3%.

Asia-Pacific markets opened higher on Friday as investors processed data from major regional economies. Japan's industrial output figures showed an unexpected 0.1% decline in April from the previous month, contrary to the 0.9% rise forecast by a Reuters poll. Despite this, Japan's Nikkei 225 rose 0.23%, and the broader Topix index gained nearly 0.7%.

South Korea's Kospi led the gains in Asia, increasing by 1.07%, with the smaller-cap Kosdaq adding 0.73%. In Australia, the S&P/ASX 200 index rose by 0.78%. Futures for Hong Kong's Hang Seng index indicated a lower open at 18,041 compared to the HSI's close of 18,230.19.

The GIFT Nifty was trading at a premium of more than 60 points versus Nifty Futures' Thursday close, indicating a positive start for the Indian market. Investors will be watching how these global market movements and domestic cues impact the trading day ahead.