Trade Setup: Nifty Bulls Regain Control On Wednesday Amid Global Uncertainty; Will The Rally Sustain?

In a turn of events that provided a much-needed respite to investors, the Nifty bulls managed to stage a comeback on Wednesday, ending a three-day losing streak. The index, which had been under pressure from Friday to Tuesday, recovered some of the lost ground, offering a glimmer of hope to market participants.

The positive momentum was boosted by a favourable handover from Wall Street. Additionally, the Bank of Japan's Deputy Governor's remarks that future rate hikes would be unlikely if markets remain unstable, spurred a recovery across Asia-Pacific indices. This ripple effect reached Dalal Street, lifting investor sentiment.

Wednesday also marked a significant rebound for several beaten-down stocks. Public Sector Undertakings (PSUs) like the Indian Renewable Energy Development Agency (IREDA) and Hindustan Aeronautics Limited (HAL), which had been on a six-day losing streak, saw gains of over 5% each. These stocks had corrected between 20% and 25% from their peaks, making their recovery notable. Additionally, sectors like Metals and Auto, which were among the top underperformers in the previous sessions, also showed signs of recovery.

The market's move on Wednesday can be interpreted in two ways. The optimists, viewing the glass as half full, believe that the recent low of 23,890 might serve as the immediate swing low, paving the way for further recovery. On the other hand, sceptics view Wednesday's rally as a potential bull trap, especially with two key events on the horizon: the Reserve Bank of India's (RBI) policy decision and the weekly options expiry of the Nifty.

The Nifty closed just below the 24,300 mark on Wednesday. For further upward momentum, it needs to surpass Monday's high of 24,350 and Tuesday's high of 24,382. A breach of these levels could signal a continued recovery. However, Wall Street's sharp reversal from session highs to ending in the red adds a note of caution to the market outlook.

Thursday's session is set to be influenced by the earnings reports of several companies announced post-market hours on Wednesday. Stocks like Apollo Tyres, Godrej Consumer, Welspun Corp, Balaji Amines, and Sula Vineyards will react to their results. Additionally, broader market stocks and PSUs, including Alembic Pharma, CONCOR, Cochin Shipyard, Garden Reach Shipbuilders, LIC, Page Industries, JB Chemicals, RVNL, IRCON International, and MRF, will report their results on Thursday.

Foreign institutions remained net sellers in the cash market on Wednesday, while domestic institutions were net buyers. This tug-of-war between institutional players continues to play a crucial role in market dynamics.

The last-hour recovery in the Nifty was led by the Nifty Bank, an underperformer, which saw its weekly expiry influence the trading session's close. The Nifty Bank not only recovered over 350 points from the day's lows but also managed to reclaim the 50,000 mark by the close of trade. Levels around 49,700 will be critical on the downside ahead of the RBI policy decision on Thursday.

Nifty 50's August futures saw a 5.3% decrease in Open Interest, now trading at a premium of 68.95 points from 64.35 points earlier. Nifty Bank's August futures shed 0.2% in Open Interest. The Put-Call Ratio for Nifty 50 improved to 0.88 from 0.71.

Aditya Birla Fashion entered the F&O ban, while Chambal Fertilisers and Granules India exited. Other stocks like Aditya Birla Capital, India Cements, Birlasoft, GNFC, IndiaMART, RBL Bank, Hindustan Copper, LIC Housing, and Manappuram Finance remain in the F&O ban.

For the August 8 expiry, Nifty 50 Call Strikes of 24,400 and 24,600 saw an Open Interest addition, while those of 24,000 and 24,200 saw a reduction. On the Put side, strikes between 24,000 and 24,300 saw an Open Interest addition.

As we approach Thursday's trading session, investors have their eyes set on several key stocks that have recently reported their quarterly earnings. These results are expected to influence market sentiment and trading strategies. Here are the detailed performances of some of the notable companies:

Hindalco
Hindalco reported its subsidiary Novelis' net profit at $151 million, marking a 3% decline year-on-year. However, excluding special items, the profit stood at $204 million, up 32% year-on-year. The company's adjusted EBITDA saw a 19% increase, reaching $500 million. Rolled product shipments grew by 8% to 951 KT, with an adjusted EBITDA per tonne shipped at $525, a 10% year-on-year increase.

Godrej Consumer Products
Godrej Consumer Products posted a net profit of Rs 450 crore. The revenue of Rs 3,331.6 crore also missed street estimates. EBITDA stood at Rs 724.5 crore, with an EBITDA margin of 21.8%. The company's net profit surged by 41.4% year-on-year, despite a 3.4% revenue decline. India business organic volumes grew by 8%, and reported volumes increased by 10%. The company's Indonesia segment saw a 7% volume growth and an 11% sales increase in constant currency terms. However, sales in Africa, the USA, and the Middle East declined by 25% in rupee terms and 10% in constant currency terms. Latin America and SAARC regions reported a 7% sales growth in rupee terms and a significant 147% in constant currency terms. Notably, Godrej Consumer has ventured into the pet care business in India, planning to invest Rs 500 crore over five years, with Godrej Agrovet as the manufacturing and R&D partner.

Marico
Marico reported that operating conditions in Bangladesh are gradually improving. After a brief interruption, the majority of its retail sales force and distributors have resumed operations, and manufacturing activities are expected to restart soon. The medium-term prospects for Marico's business in Bangladesh remain positive, reflecting resilience and strategic management.

Apollo Tyres
Apollo Tyres experienced a 23.9% drop in net profit to Rs 302 crore, despite a 1.4% increase in revenue to Rs 6,334.9 crore. EBITDA fell by 13.5% to Rs 909.4 crore, with the EBITDA margin shrinking to 14.4% from 16.8% last year. While APMEA revenue increased to Rs 471 crore from Rs 450 crore, European revenue remained flat at Rs 171 crore. The results indicate a challenging environment with margin pressures despite revenue growth.

Sula Vineyards
Sula Vineyards saw a 6.6% rise in net profit to Rs 14.6 crore, with revenue climbing 11.4% to Rs 121 crore. EBITDA grew by 11.5% to Rs 33.9 crore, maintaining a stable EBITDA margin of 28%. The company has expansion plans for ND Wines and Domaine Sula, set to open before the festive season, expected to boost performance in the second half. The monsoon season is on track to deliver a healthy harvest, ensuring an adequate supply of wines in 2025. The premium 'The Source' range grew by 21% year-on-year, indicating strong demand for higher-end products.

Welspun Corp
Welspun Corp reported a 50% increase in net profit to Rs 248.2 crore, though revenue declined by 22.9% to Rs 3,137.3 crore. EBITDA rose by 1.4% to Rs 374 crore, with the EBITDA margin improving to 11.9% from 9% last year, thanks to a better mix of export orders and contributions from new businesses. The company has a robust order book worth Rs 8,508 crore across Line Pipes, DI Pipes, and SS Bar and Pipes. Welspun's subsidiary, Sintex BAPL, plans to acquire a 100% stake in Weetek Plastics Pvt. Ltd. for Rs 85 crore.

NHPC
NHPC posted a marginal 1.2% increase in net profit to Rs 1,108.5 crore, while revenue fell by 2.3% to Rs 2,694.2 crore. EBITDA decreased by 2.8% to Rs 1,462.6 crore, with the EBITDA margin slightly down to 54.3% from 54.6% last year. Despite the revenue dip, NHPC maintained stable margins, reflecting efficient cost management.

GMM Pfaudler
GMM Pfaudler saw a significant 52.2% drop in net profit to Rs 23.9 crore, with revenue decreasing by 13.9% to Rs 785.2 crore. EBITDA fell by 32% to Rs 88.5 crore, with the EBITDA margin narrowing to 11.3% from 14.3% last year. However, the company reported a strong order intake of Rs 882 crore, the highest in the last eight quarters, driven by heavy engineering, mixing technologies, and systems. The order backlog stood at Rs 1,777 crore, and the company is set to launch a three-year plan.

Global Market Cues
Stock market futures fell on Wednesday evening, reflecting continued market volatility. Futures tied to the Dow Jones Industrial Average lost 112 points, or about 0.3%, while S&P 500 futures slipped 0.5% and Nasdaq 100 futures dropped 0.7%. This decline came after stocks failed to sustain an early rally on Wednesday. The S&P 500 ended down 0.77%, the Nasdaq Composite sank 1.05%, and the Dow shed about 234 points, or 0.60%. All three averages have now declined in four of the past five sessions, fueling concerns about market stability.

The yield on the 10-year Treasury continued its recovery on Wednesday, rising by around 7 basis points to 3.954% at 4 pm ET. The yield on the 2-year note was marginally higher at 3.987%.

In contrast to the turbulence in the US, European stocks closed higher on Wednesday, marking their best performance in over nine months. The pan-European Stoxx 600 ended the session up 1.56%, its strongest session performance since November 2, 2023, according to LSEG data. Banks recovered from recent steep losses, gaining 3%, while financial services added 2.36%.

Oil prices rose for the third straight session on Thursday after government data showed a draw in US crude stockpiles. Brent crude futures increased by 23 cents, or 0.3%, to $78.56 a barrel, while US West Texas Intermediate crude gained 29 cents, or 0.4%, to $75.52. Earlier in the week, Brent had tumbled to its weakest level since early January, and WTI had dipped to its lowest since February, both affected by recession worries and a selloff in global stocks.

Japanese and other Asian stocks fell on Thursday, continuing a period of volatile trading as investors digest signals from central banks regarding future interest rate paths. The Topix Index in Japan opened lower, alongside benchmarks in Australia and South Korea. US futures also fell in early Asian trading, following declines in the S&P 500 and Nasdaq 100 on Wednesday. Asian markets have been rocked by the anticipation of divergent monetary policies from the US and Japanese central banks, which has impacted the yen's role as a cheap source of funding for financial assets.

On the domestic front, GIFT Nifty was seen trading at a discount of more than 200 points from Nifty Futures Wednesday close, indicating a gap-down start for the Indian market.

The market's direction on Thursday will be heavily influenced by the RBI's policy decision and the weekly options expiry. Investors will closely monitor these events to gauge the market's future trajectory. Whether Wednesday's rally marks the beginning of a sustained recovery or a temporary bulltrap remains to be seen.