Trade Setup: Weak Global Cues Likely To Trigger Market Sell-off; Will Sensex & Nifty Hold Crucial Levels?

As the new trading week kicks off, the Indian equity markets brace for a challenging start with the GIFT Nifty down over 350 points, signalling a significant gap-down opening for both the Sensex and Nifty 50. This sharp decline follows a turbulent end to last week, where the Nifty witnessed a dramatic fall from its recent high of 25,000 points, pulling back to just above 24,700.

Last Friday, global markets experienced a broad sell-off driven by weak economic indicators and rising geopolitical tensions, particularly in West Asia. The Nifty was no exception, breaking an eight-week gaining streak. Autos, metals, and IT stocks led the decline, while the pharma sector emerged as a rare outperformer. Despite the drop, the broader markets moved in tandem with the benchmark indices, contributing to a spike in the India Volatility Index (VIX), which surged 10% to approach the 15 mark.

Historically, a gap-down opening would often be followed by dip-buying during the trading day. However, Friday's session saw no such buying interest. Instead, even minor recoveries were met with aggressive selling. The selling pressure was compounded by the US markets, which plunged following disappointing non-farm payroll data. This data stoked fears that the Federal Reserve had delayed too long in cutting interest rates, risking a downturn as the economy shows signs of weakening. The Nasdaq has already entered correction territory, down 10% from its recent highs, while Japanese markets faced their worst day since 1987.

The Nifty's correction on Friday saw significant losses across major sectors. Autos, Metals and IT led the decline, dragging the index lower. Pharma managed to buck the trend, showing resilience amid the broader market sell-off. The surge in the India VIX shows the heightened uncertainty and risk aversion among investors.

Monday's trading session is set to be influenced by earnings reports from several Nifty components, including SBI, Divi's Laboratories, Titan, and Britannia. Additionally, broader market names like Amara Raja, Bank of India, JK Tyre, Nucleus Software, and Savita Oil will also report their results, adding to the market's volatility. Bharti Airtel, ONGC, Bharti Hexacom, Honeywell Automation, Devyani International, Deepak Nitrite, and Marico are slated to announce their earnings on Monday, which could further sway market sentiment.

Foreign institutional investors (FIIs) were net sellers in the cash market on Friday, exacerbating the downward pressure, while domestic institutions (DIIs) acted as net buyers, providing some support. This tug-of-war between FIIs and DIIs will be critical in determining the market's direction in the near term.

Compared to the Nifty, the Nifty Bank index showed relative resilience, falling less in quantum and even managing to end the week higher. Crucially, it maintained its position above the key support level of 51,000. The ability of the Nifty Bank to hold this support in the face of a potential gap-down opening will be closely watched by market participants.

Nifty 50's August futures shed 2.9% in open interest (4.5 lakh shares) on Friday, now trading at a discount of 6.15 points from a previous premium. Nifty Bank's August futures added 4.6% in open interest (1.2 lakh shares), indicating some bullish positioning. Put-Call Ratio dropped to 0.91 from 1.29, reflecting a shift in sentiment.

Additionally, Aditya Birla Capital and Chambal Fertilisers have entered the F&O ban list, joining Granules India, India Cements, Birlasoft, GNFC, IndiaMART, and RBL Bank.

As we approach Monday's trading session, several key stocks are positioned to impact market sentiment. The spotlight will be on companies that recently announced their quarterly earnings, revealing a mix of performance metrics that could drive investor decisions. Here's a detailed look at the stocks to watch:

State Bank of India (SBI)
SBI reported a net profit of ₹17,035 crore. The Net Interest Income (NII) stood at Rs 41,125 crore. The Gross Non-Performing Assets (NPA) ratio improved marginally to 2.21% from 2.24% in March, while the Net NPA remained stable at 0.57%. Provisions increased significantly to Rs 3,449.4 crore from Rs 2,501 crore last year and Rs 1,609 crore sequentially. Outgoing chairman Dinesh Khara aims for a profit after tax of Rs 1 lakh crore by the end of the financial year 2025, setting a bullish tone for the bank's future.

Titan Company
Titan's revenue for the quarter came in at Rs 12,053 crore. However, the company reported an EBITDA of Rs 1,211 crore, with an EBITDA margin of 10%. The jewellery business maintained a stable EBIT margin of 11.2%, up from 11% last year, although buyer growth was less than 2%. The share of studded jewellery remained unchanged at 26%. The recent budget announcement of lower excise duty could serve as a tailwind for the upcoming festive and wedding season.

Britannia Industries
Britannia posted a revenue of Rs 4,250 crore. The EBITDA was Rs 754 crore, with an EBITDA margin of 17.7%. The company recorded an 8% domestic volume growth. Notably, Britannia's rural market share grew faster than its urban counterpart, driven by an expanded distribution footprint and enhanced product offerings. Modern trade and e-commerce segments also performed well, contributing to a gross margin increase to 43.4% from 41.9% last year.

Divi's Laboratories
Divi's Laboratories saw a 19.1% revenue increase to Rs 2,118 crore. The EBITDA was Rs 622 crore, resulting in an EBITDA margin of 29.4%. Higher tax expenses weighed on profits, but management remains optimistic about opportunities from the Biosecure Act and phase 2 and phase 3 molecules. They also highlighted potential in the GLP 1 drug market, despite ongoing pricing pressures in large volume APIs.

Bank of India
Bank of India reported a 10% increase in net profit to Rs 1,702.7 crore, with NII up 6.1% to Rs 6,275.8 crore. The Gross NPA improved to 4.62% from 4.98% in March, while the Net NPA decreased to 0.99% from 1.22%, signalling improved asset quality.

Amara Raja Batteries
Amara Raja posted a 16.7% revenue growth to Rs 3,263 crore and a 19% increase in EBITDA to Rs 437 crore, resulting in an EBITDA margin of 13.4% from 13.1% last year. Net profit rose by 25.6% to Rs 249 crore. The company experienced robust volume growth in two-wheelers, while four-wheelers saw tepid demand. Industrial applications volume growth was moderate.

Delhivery
Delhivery turned a profit of Rs 54.4 crore, compared to a loss of Rs 89.5 crore last year. Revenue increased by 12.7% to Rs 2,172.3 crore. The company reported an EBITDA profit of Rs 97 crore from a loss of Rs 15.1 crore, with an EBITDA margin of 4.5%. Part Truckload and Supply Chain Solutions segments performed well, with revenues up 25% and 26%, respectively.

LIC Housing Finance
LIC Housing Finance's NII was Rs 1,989.1 crore, below the expected Rs 2,194.2 crore. Net profit was Rs 1,300.2 crore, exceeding the projected Rs 1,244.8 crore. The Gross NPA slightly improved to 3.29% from 3.31%, while the Net NPA increased to 1.68% from 1.63%. The company saw a 19% increase in disbursals year-on-year, with an AUM growth of 4.4%.

JK Tyre
JK Tyre reported a 37.3% increase in net profit to Rs 211.4 crore, despite a 2.1% decline in revenue to Rs 3,639 crore. EBITDA grew by 9.3% to Rs 500 crore, resulting in an EBITDA margin of 13.7% from 12.3% year-on-year. The replacement market contributed 62% to the consolidated topline.

Power Mech Projects
Power Mech Projects secured an order worth Rs 142.5 crore from Meenakshi Energy in Andhra Pradesh, aimed at reviving Phase II (2 X 350 MW) in Nellore District. The project is expected to be completed within eight months.

Ambuja Cements
Ambuja Cements announced an investment of Rs 1,600 crore to set up a 6 MTPA grinding unit in Bihar, signalling expansion plans in the region.

Gland Pharma
Gland Pharma received a form 483 with three observations from the USFDA for its Hyderabad-based Pashamylaram facility. The company stated these observations are procedural and corrective steps will be taken promptly.

M&M Financial
M&M Financial reported a 3% increase in overall disbursement to Rs 4,530 crore for July. Collection efficiency stood at 95%, and Stage-3 and Stage-2 assets remained below 10%. The company maintains a comfortable liquidity position of over Rs 7,600 crore.

SJVN
The Cabinet approved an investment proposal of Rs 5,792.36 crore for SJVN's 669 MW Lower Arun Hydro Electric project in Nepal, with a levelized tariff of Rs 4.99 per unit.

Ashoka Buildcon
Ashoka Buildcon emerged as the lowest bidder for two projects worth Rs 1,280.8 crore from the Mumbai Metropolitan Region Development Authority (MMRDA).

Global Market Cues
US stock futures experienced a sharp decline on Sunday night following a turbulent week on Wall Street. Futures tied to the Dow Jones Industrial Average dropped 383 points, or 0.96%, while S&P 500 futures fell 1.6% and Nasdaq-100 futures plummeted 2.5%. This downturn is a continuation of the volatility that has plagued the market, culminating in the Nasdaq Composite entering correction territory.

Last week marked a severe setback for major US indices. The Nasdaq Composite, known for its tech-heavy makeup, recorded a third consecutive week of losses, now down over 10% from its peak last month. Similarly, the S&P 500 endured its third straight losing week, dropping 2%. The Dow Jones Industrial Average, which had shown relative strength, succumbed to the broader market pressures, snapping a four-week winning streak with a 2% decline.

Friday's market decline was exacerbated by a disappointing jobs report, which stoked fears that the Federal Reserve might have erred by keeping interest rates unchanged last week. This decision, amidst growing economic uncertainty, has intensified concerns about a potential recession. The weaker-than-expected job numbers have cast a shadow over economic growth prospects, prompting a sell-off in US Treasury yields.

The benchmark 10-year Treasury yield fell to 3.796%, down over 17 basis points, reaching its lowest level since December 2023. The 2-year Treasury yield also dropped significantly, now at 3.882% after a 28 basis point decrease.

The ripple effects of US market turbulence were felt across Europe. The Stoxx 600 index closed 2.82% lower on Friday, marking its worst day since December 2022. The index fell below the 500-point threshold for the first time since April, as almost all sectors and major bourses ended the day in the red. The tech sector was particularly hard hit, with US tech giant Intel experiencing a 28% plunge in morning trading following an earnings miss.

The economic jitters extended to the oil markets, with US crude oil prices falling nearly 3% on Friday. The West Texas Intermediate (WTI) contract for September settled at $76.81 per barrel, down $2.79 or 3.66%. Similarly, the Brent October contract also settled at $76.81 per barrel, dropping $2.71 or 3.41%. Despite rising tensions in the Middle East, WTI dropped 4.7% for the week, while Brent pulled back 5.3%.

The market downturn did not spare the Asia-Pacific region, where investors are bracing for critical trade data from China and Taiwan and central bank decisions from Australia and India this week. Japanese markets led the losses, with the Nikkei 225 and Topix indices plummeting as much as 7% in volatile trading. Major trading houses such as Mitsubishi, Mitsui & Co., Sumitomo, and Marubeni saw their shares plunge around 10%. Both the Nikkei and Topix are nearing bear market territory, having fallen almost 20% from their highs on July 11.

The GIFT Nifty, a key indicator of the Indian equity market's opening, is down over 350 points compared to Nifty Futures' Friday close, signalling a grim start for Indian markets on Monday. This anticipated gap-down opening comes amid global economic uncertainties and market volatility, suggesting a challenging day ahead for traders and investors.

The confluence of weak global cues, geopolitical tensions, and upcoming earnings reports sets the stage for a volatile trading session on Monday. Market participants will need to navigate these challenges carefully, with a close eye on key support levels and institutional activity. The resilience of the Nifty Bank and the behaviour of the VIX will be crucial indicators of market sentiment in the days ahead.