Trade Setup For June 5: Nifty May See More Correction Following Tuesday's Rout

Investors should avoid aggressive directional trades in either direction as there is a possibility for further correction in the Indian equity market, according to market analysts.

During the previous day, the benchmark indices logged their worst session in over four years.

Indian equity valuations were quite rich already, and election result day presented it with the perfect reason to correct themselves, according to Amar Ambani, executive director at Yes Securities. "Another 10% correction cannot be ruled out, simply on the basis of where we stand on market multiples." As long as a stable coalition is put in place, markets will settle down after a while.

Though 21,800 in Nifty was defended, a move below a low of 21,281, which coincides with a the 200 DEMA, should be watched out for adding short positions, according to Shrey Jain, founder of SAS Online. "Traders should avoid aggressive directional trades in either direction."

Fresh long can be initiated above 22,200 for higher targets up to 22,800. On the lower side, the Nifty may touch 21,000 and 20,600, Jain said. For Bank Nifty, fresh longs should be initiated above 47,700 for targets of 48,300 and 49,700. "Shorts can be initiated below 45,900. It may correct to 44,000." 

The GIFT Nifty was trading 67 points, or 0.3% lower at 22,033 as of 7:27 a.m.

The Nifty May futures were down by 6.12% to 21,908.15 at a premium of 23.65 points, with its open interest up by 1.17%. The Nifty Bank May futures were down by 7.8% to 47,088.55 at a premium of 159.95 points, while its open interest was up by 8.65%.

The open interest distribution for the Nifty June 6 series indicates that the 20,200 level is seeing the most put strikes, and call strikes of 24,700 have the maximum open interest.

For the Bank Nifty options' June 5 expiry, the maximum call open interest was at 57,000 and the maximum put open interest was at 40,000.

Overseas investors turned net sellers on Tuesday after remaining buyers for two consecutive sessions.

Foreign portfolio investors sold stocks worth Rs 12,436.2 crore—the highest this year—while domestic institutional investors turned net sellers after staying buyers for 10 straight sessions and sold equities worth Rs 3,318.98 crore, according to provisional data from the National Stock Exchange.

Indian equity gauges tumbled to log their worst session in over four years, as poll trends indicated a closer-than-expected fight for the incumbent Prime Minister Narendra Modi government. But, consumer goods stocks bucked the selloff to emerge as the only winners on Tuesday.

The NSE Nifty 50 closed 1,379.4 points, or 5.93%, lower at 21,884.5, while the S&P BSE Sensex ended down 4,389.7 points, or 5.74%, at 72,079. Intraday, Nifty fell as much as 8.52% to 21,281.4, the highest intraday fall since March 23, 2020; while Sensex declined 8.15% to 70,234.4.

During the session, the Nifty 50 companies' market capitalisation loss widened to Rs 10 lakh crore, while the Nifty recorded its biggest intraday decline in over four years.

Broader markets underperformed benchmarks. The S&P BSE Midcap settled 8.07% lower, and the S&P BSE Smallcap closed down 6.79%.

On BSE, 19 out of 20 sectors closed lower, and one settled higher. S&P BSE Utilities was the worst performing sector, and the S&P BSE FMCG was the top sector.

Market breadth was skewed in the favour of sellers. Around 3,337 stocks declined, 500 advanced, and 97 remained unchanged on the BSE.

• Hindalco Industries: US subsidiary Novelis announced early on Wednesday its decision to postpone its $945 million initial public offering due to 'market conditions'.

• Wipro: The company announced that it has partnered with Zscaler to introduce Wipro Cyber X-Ray, an AI-assisted decision support platform.

• Hindustan Aeronautics: The Sukhoi 30 MKI aircraft crashed today while on a test sortie from the company's Nashik Division. Both pilots have been ejected safely; a technical snag was reported by the pilots.

• Tata Motors: The company incorporated the wholly owned unit TML Commercial Vehicles as part of the proposed demerger.

Stocks in the Asia-Pacific region were trading mixed after its Wall Street peers ended higher on renewed bets of rate cuts by the Federal Reserve as data showed a cooling US labour market.

The Nikkei 225 was 454 points or 1.17% down at 38,382, and the KOSPI was 21 points, or 0.8% higher at 2,683 as of 06:35 a.m.

The bond market climbed as signs of labour-market cooling reinforced speculation the Federal Reserve will be able to cut rates this year, Bloomberg reported. The US 10-year yields extended a four-day plunge to almost 30 basis points.

The S&P 500 rose 0.15% and the Nasdaq Composite advanced 0.17% as of Monday. The Dow Jones Industrial Average rose by 0.36%.

• US Dollar Index at 104.18

• US 10-year bond yield at 4.33%

• Brent crude down 0.22% at $77.35 per barrel

• Nymex crude down 0.30% at $73.03 per barrel 

• Bitcoin was up 0.35% at $70,668.94

The Indian rupee weakened against the US dollar on Tuesday after local equities declined amid initial trends indicating a narrow win for the PM Narendra Modi-led government.

The local currency weakened 38 paise to close at Rs 83.53 against the US dollar, after opening at Rs 83.38. The rupee had closed at Rs 83.14 on Monday.