Trade Setup For Aug. 6: Nifty 50 Falls Below Budget-Day Low, Analysts Predict Continued Volatility

The Nifty 50 dipped below its budget-day low, while Indian benchmarks closed at their lowest point in over a month. This decline aligns with global equity markets, which were unsettled by growing concerns over a potential US recession and escalating tensions in the Middle East, causing investor apprehension.

Nifty opened with a significant gap-down and corrected by more than 800 points during the day, ultimately closing with a loss of 662 points (-2.7%) at 24,056 levels. The volatility index, India VIX, surged by 42% to 20 levels, reflecting investor fears of an economic slowdown.

"Going forward, we expect volatility to continue ahead of RBI policy announcements and multiple global headwinds, including the unwinding of Yen carry trades, recession fears in the US, and escalating tensions in the Middle East. The US slowdown is a bigger concern, and sooner or later, the US Fed will bite the bullet of interest rate cuts, which should provide relief in the current environment," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd.

"Further, the valuation for Nifty is comfortable near its 10-year average at 21 times one-year forward P/E. Hence, we believe that any correction in Indian equities should be an opportunity for long-term investors to accumulate good-quality stocks," Khemka said.

"Technically, the index witnessed heavy selling pressure after forming a spinning top pattern and ending with a red candle. A strong break below 24,000 will likely trigger further selling pressure in the index. On the downside, 23,300 and 23,000 will provide significant support for the Nifty in the immediate term," said Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C Mehta Investment Intermediates Ltd.

The Bank Nifty index also opened on a negative note, remained under pressure throughout the day, and settled negatively at 50,092. "Technically, the index has broken the short-term swing support at 50,438 and continued forming lower highs and lower lows, indicating weakness. On the upside, 50,400–50,500 will act as an immediate hurdle for the Bank Nifty, while 49,500 and 49,000 will provide short-term support for the index," Yedve said.

As of 6:42 am, the GIFT Nifty is trading 1.01%, or 242.5 points, higher at 24,364.5.

The Nifty August futures are down 2.5% to 24,103 at a premium of 58 points, with open interest down by 3.63%.

Nifty Bank August futures are down by 2.49% to 50,215 at a premium of 123 points, while its open interest is up by 13.52%.

The open interest distribution for the Nifty 50 Aug. 8 expiry series indicated most activity at 26,000 call strikes, with 24,000 put strikes having maximum open interest.

For the Bank Nifty options expiry on Aug. 7, the maximum call open interest was at 52,000 and the maximum put open interest was at 50,000.

On Monday, overseas investors sold the highest amount of stocks since June 4, 2024, when they had offloaded Rs 12,436 crore worth of equities on the day of the Lok Sabha election results.

Foreign portfolio investors offloaded equities worth Rs 10,073.7 crore for a second consecutive session, according to provisional data from the National Stock Exchange.

Domestic investors have bought the highest amount of stocks so far this year. They remained net buyers for the second consecutive session and mopped up equities worth Rs 9,155.5 crore, the NSE data showed.

The Indian benchmark indices ended at over a month-low on Monday as Reliance Industries Ltd. and HDFC Bank Ltd. declined. The NSE Nifty 50 ended 662.10 points, or 2.68%, lower at 24,055.60, the lowest since June 28. The S&P BSE Sensex closed 2,222.55 points, or 2.74%, down at 78,759.40, the lowest level since June 26.

The selloff in global equities, as traders unwound their carry-trade bets on the Japanese yen after it rose against the US dollar, put pressure on the benchmarks.

During the day, the Nifty declined as much as 3.33% to 23,893.70 and the Sensex slumped 3.32% to 78,295.86, the lowest levels since June 4. The market cap of Nifty 50 companies decreased from Rs 5.5 lakh crore to Rs 191.8 lakh crore on Monday.

The broader indices underperformed as the BSE MidCap ended 3.60% lower and the SmallCap closed 4.21% lower.

All 20 sectoral indices on the BSE ended lower, with metal and services falling the most.

• Biocon: The company received Establishment Inspection Report with Voluntary Action Indicated from US FDA for Visakhapatnam API facility.

• Bharti Airtel: The company reported a 128% quarter-on-quarter advance in net profit for the first quarter of fiscal 2025, beating analysts' estimates.

• Tata Chemicals: The company reported a decline in net profit in the first quarter of fiscal 2025, though it met analysts' estimates.

• ONGC: The company reported a net profit at Rs 10,235.64 crore vs Rs 11,526.53 crore, down 11.19% in its Q1 earnings.

• Adani Energy Solutions: The company raised Rs 8,373 crore via QIP. The QIP saw 6 times demand of the base deal size. The QIP proceeds to be used for investment in transmission assets, smart metering business and debt repayment.

• Aurobindo Pharma: US FDA inspected at arm's Bhiwadi manufacturing facility and closed with' Official Action Indicated' classification.

• Emami, Marico, Dabur, Pidilite: Indian consumer goods companies operating in Bangladesh will be in focus after the recent political turmoil following the ouster of PM Sheikh Hasina.

Asian stocks recovered some losses seen during Monday's rout triggered by the unwinding of Yen carry trade as the risk-off sentiment abated with investors awaiting fresh cues from major central banks.

Stocks in Japan pared losses to traders higher in early trade while those of Australia and South Korea also climbed. The Nikkei 225 was trading 2,602 points or 8.2% higher at 34,040, while the S&P ASX 200 was 38 points or 0.5% up at 7,687 as of 06:24 a.m.

The global rout that began with the unexpected rate hike by the Bank of Japan last Friday hit stocks from Tokyo to New York and all of Asia. It was further accentuated by weak economic data from the US as trader weighed the possibility of aggressive rate cuts going ahead.

Sovereign bonds around the world rallied as investors rushed into safe havens as the risk assets took a heavy beating. In the US, the S&P 500 recorded its biggest drop in about two years while the Nasdaq 100 saw its worst start to a month since 2008, according to Bloomberg.

The market volatility in the US, also known as the fear gauge, saw its biggest spike since 1990. Early in the week, economists at Goldman Sachs raised the probability of recession in the next year to 25% from 15%.

The S&P 500 and Nasdaq Composite declined 3.00% and 3.43%, respectively as of Monday. The Dow Jones Industrial Average fell 2.60%.

Meanwhile, investors will eye Japan's wage data and the Australian central bank's interest-rate decision amid the global turmoil.

Brent crude was trading 1.77% higher at $77.65 a barrel. Gold was 0.17% down at $2,414.95 an ounce.

• US Dollar Index at 102.87

• US 10-year bond yield at 3.84%

• Brent crude up 1.77% at $77.65 per barrel

• Bitcoin was up 2.16% at $55,572.69

• Gold spot was up 0.17% at $2,414.95 an ounce.

The Indian rupee weakened to a fresh record low on Monday amid the unwinding of yen carry trades, following which all Asian equity markets took heavy losses. This is despite a rise in Brent crude and a decline in the dollar index.

The local currency weakened 9 paise to end at a record closing low of Rs 83.84 after opening at Rs 83.79 against the greenback. It had closed at Rs 83.75 on Friday.

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