Trade Setup: Nervous Market Braces For Turbulent Week Of US Elections As Nifty Fails To Hold 24,000

In a week rife with pivotal events and economic signals from across the globe, nerves ran high on Dalal Street as investors entered Monday's trading session with a distinct sense of caution. From the impending US presidential election results to the US Federal Reserve's guidance on interest rates, the financial landscape is poised for potentially transformative shifts. This uncertain climate led investors on the Indian bourses to adopt a conservative approach, with risk aversion driving much of the day's trading.

Despite intermittent recovery attempts, Monday's session saw persistent selling, with the Nifty index plunging below the significant 24,000 mark before closing just under that level. A majority of the decline originated from heavyweight banking stocks, which alongside Reliance Industries, led the downturn. In fact, four stocks - HDFC Bank, ICICI Bank, Reliance Industries, and Axis Bank - contributed to nearly 40% of the Nifty's 309-point drop.

The banking sector bore the brunt of Monday's selling pressure, with Nifty Bank falling over 450 points. The index experienced a peak-to-trough decline exceeding 500 points during the day. Notably, PSU banks like State Bank of India (SBI) and Punjab National Bank (PNB) managed to recover from sharper intra-day losses, which helped mitigate the broader index's downward momentum. SBI's performance drew particular attention, as its quarterly results later this week could provide insights into the financial health and profitability of the sector.

The Nifty Bank's immediate resistance on the upside remains near the 51,800 mark, while support is seen around the 51,000 level. Observers suggest that the resilience of PSU banks might offer some relief to banking indices if the market sentiment stabilizes. However, Monday's sell-off reflected a cautious investor sentiment ahead of several high-stakes events.

In addition to the largecap Nifty index, broader markets also witnessed significant losses. The Nifty Smallcap index declined 2%, while the Midcap index slid 1.3%. The widespread selling pressure erased a substantial Rs 6.5 lakh crore in market capitalization.

Monday's volatile session left the Nifty almost 9% below its record high of 26,277 reached in late September. This sustained dip highlights an erosion of investor confidence, with 48 out of the 50 index constituents posting losses since the peak. Moreover, nearly half of these stocks have seen double-digit declines, intensifying the bearish mood on Dalal Street.

The Nifty managed to defend the 23,800 level, recovering nearly 160 points from its session low. This level now becomes a critical support for Tuesday's trading. On the upside, Monday's high of 24,316 marks a near-term resistance level that traders will closely watch. Market sentiment remains bearish, and these technical markers will likely influence near-term market direction.

Global Market Cues
The US presidential election is set to be a defining event this week, with former President Donald Trump and Vice President Kamala Harris locked in a closely contested race. According to the latest NBC News poll, the candidates are neck-and-neck, amplifying market volatility as investors weigh potential changes in US economic policies, including taxes and spending.

Adding to the week's heavy agenda is the US Federal Reserve's upcoming interest rate decision. The market is eager for clues on the central bank's future monetary policy, particularly regarding interest rate trajectory amid persistent inflationary pressures. Lower US Treasury yields on Monday indicated heightened caution among investors.

A few sectors managed to weather the storm on Monday. The IT index remained unchanged, showing resilience despite the overall market weakness. A depreciating rupee, which touched a record low of 84.12 against the US dollar, has traditionally benefitted Indian IT companies, as their revenue is largely dollar-denominated. Market observers noted that the currency's depreciation could offer some cushion to IT majors in upcoming sessions.

Meanwhile, oil prices surged nearly 3% on Monday following OPEC+'s decision to defer a planned output increase. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, extended their existing production cuts to counter low prices and tepid demand. Brent crude rose by $1.98 per barrel, or 2.71%, closing at $75.08, while US West Texas Intermediate crude settled at $71.47. This development could impact Indian oil and gas companies, especially in light of rising global energy prices.

F&O Signals Suggest Market Caution
In the derivatives market, Nifty 50's November futures witnessed a 5.1% increase in open interest on Monday, with a premium of 119.3 points, up from the previous session's 79.3 points. The Put-Call Ratio (PCR) fell to 0.85, indicating heightened bearish sentiment.

For the Nifty Bank futures, November contracts recorded a 2.7% increase in open interest, with no stocks currently in the F&O ban. Open interest data suggests cautious positioning as traders navigate a week filled with high-impact events.

Stocks to Watch Ahead of Tuesday's Session
A slew of corporate results and management commentary are expected to impact individual stocks on Tuesday. Here's a quick snapshot of stocks that reported notable earnings:
IRCTC: The company reported a net profit rise of 4.5% year-on-year to Rs 307.8 crore. Revenue increased 7.2%, while the EBITDA margin stood at 35%.
Gland Pharma: Net profit fell 15.7% year-on-year to Rs 163.5 crore, as revenue saw a marginal uptick of 2.4%.
Amara Raja Batteries: Net profit increased 6% to Rs 241 crore, while revenue climbed 11.6%.
ABB India: Strong results with net profit up 21.4%, driven by a 5.2% increase in revenue.
Other stocks including Sundaram Finance, Automobile Corp of Goa, and P&G Health will also be in focus based on their recent performance.

FII and DII Activity
Foreign institutional investors (FIIs) continued their selling spree, offloading equities worth Rs 4,329.79 crore on Monday, highlighting concerns over global risk factors. On the other hand, domestic institutional investors (DIIs) countered this selling pressure by purchasing equities worth Rs 2,936.08 crore. The net buying from DIIs shows the cautious optimism within domestic circles, even as international investors remain wary.

US Market
US stock futures were flat in overnight trading, with Dow Jones, S&P 500, and Nasdaq-100 futures inching lower by less than 0.1%. Major US indices had closed in the red on Monday, with the Dow down 250 points, or 0.6%. Investors flocked to safe-haven assets as Treasury yields declined, reflecting a guarded outlook ahead of Tuesday's high-stakes election and the Federal Reserve's anticipated commentary.

European Markets
European markets also displayed cautious trading, with the pan-European Stoxx 600 down 0.3% on Monday. Regional bourses traded in the red as well, weighed down by sectors like technology, which fell by 1.1%. The banking sector, however, managed a modest gain of 0.7%, hinting at selective investor interest.

As Dalal Street heads into Tuesday's session, market participants face a confluence of global events that could steer short-term market momentum. Key support and resistance levels will be closely watched, with Nifty's technical markers and the banking index's performance serving as barometers of sentiment. With investor nerves stretched and volatility high, both institutional and retail investors will be keeping a close eye on global cues, particularly from the US, for directional insights.