Nifty recovers sharply but ends only marginally above 12,000; 5 factors that hit sentiment

The market trimmed sharp losses in afternoon trade to close off day’s low on January 8, supported by select banking & financials, technology and FMCG stocks.

The BSE Sensex recovered 341 points from day’s low to end 51.73 points down at 40,817.74, while the Nifty50 managed to defend psychological 12,000 mark, falling 27.60 points to 12,025.40.

The broader market closed mixed with Nifty Midcap index rising third of a percent whereas Nifty Smallcap index declined third of a percent.

“Global market situation is tense on escalating tensions in Middle East. Focus over the next few days will be on the macro developments but soon as earnings start, focus should shift to corporate earnings,” , Head of Research at Reliance Securities told Moneycontrol.

Iran launched a missile attack on US-led forces in Iraq, which came hours after a funeral of Iranian commander. It was an retaliation for the US drone strike on an Iranian commander whose killing has raised fears of a wider war in the Middle East.

Iran fired more than a dozen ballistic missiles from its territory against at least two Iraqi facilities hosting US-led coalition personnel at about 1:30 am. (2230 GMT), reports Reuters quoting the US military.

The agency quoting one source said early indications were of no US casualties while Iran’s Islamic Revolutionary Guards Corps confirmed they fired the missiles in retaliation for last week’s killing of Qassem Soleimani, according to a statement on state TV.

The Iranian force advised the United States to withdraw its troops from the region to prevent more deaths and warned US allies including Israel not to allow attacks from their territories, the report said.

The Iran forces’ retaliatary attack on US troops intensified tensions in the Middle East, which ultimately triggered sell-off across markets.

Asian stocks erased most of their previous day’s gains with Japan’s Nikkei falling 1.57 percent and South Korea’s Kospi down 1.11 percent. China’s Shanghai Composite fell 1.22 percent and Hong Kong’s Hang Seng 0.83 percent.

Dow Jones futures dropped more than 100 points as Iran retaliation raised fears of bigger conflict. In previous session, Dow Jones Industrial Average closed 120 points lower.

Oil Prices and Gold

Oil prices saw buying interest as investors feared a wider conflict in the Middle East after Iran fired missiles on US troops housing in Iraqi facilities, which could disrupt the supply.

India is one of the world’s largest oil importer, hence any rise in prices raised fears of higher inflation and also distrubed the fiscal deficit of the country. India imports around 85 percent of its requirement.

International benchmark Brent crude futures shot back above $70 per dollar to their highest level since mid-September, but cooled off a bit from those levels to trade 0.5 percent higher at $68.61 a barrel at the time of publishing this copy.

Middle-east is a major oil producing region and any tension in the region translates into supply concerns and pushes crude oil price higher. As per US Energy Information Administration data, Middle-east region production stood about 31.24 million barrels per day in 2018, about 31 percent of global output.

“Market players are also worried about a wider conflict in the region which could also severely affect supply however the biggest producer in the region is Saudi Arabia, a major US ally. Also Iran has on multiple occasion threatened to attack the Strait of Hormuz which is a major transit route in the Persian Gulf. If Iran closes shipping through the channel, it will not only affect crude oil supply but other cargo as well having a severe impact on global economy,” said Ravindra Rao of Kotak Securities.

Any global tensions always spurred the demand for safe haven gold which increased 1.2 percent to $1593.50 an ounce in the international market.

GDP Estimates

The market was also worried about India’s economic growth which the government expects at 5 percent for financial year 2019-20, far slower than the 2018-19 expansion rate of 6.8 percent.

At 5 percent, the growth would be at an 11-year low.

India’s GDP — the total value of goods and services produced in the country — slumped to over 6-year low of 5 percent in the April -June quarter and 4.5 percent in the July – September quarter of 2019.

The government estimated that gross value added (GVA), which is GDP minus net taxes, will grow at 4.9 percent in 2019-20. GVA is a more realistic guide to measure changes in the aggregate value of goods and services produced in an economy.

The GDP advance estimates are crucial as the Finance Ministry prepares Budget projections for the next financial year based on the statistics office data for 2018-19.

“The FY20 GDP growth estimates at 5 percent is on expected lines. The 5 percent print will put strain on the fiscal forcing the government to cut down on expenditure in Q4. This will further delay the recovery in growth. The growth recovery expected from Q1 FY 21 will be weak & slow,” V K Vijaykumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

Technical View

The Nifty50 recovered sharply from day’s low in the afternoon and closed off day’s low, forming bullish candle on daily charts as closing was much higher than opening tick.

“Bulls attempt a pullback from the lows of the trading session however, markets are in a fragile state and recoveries are likely to be temporary. Market breadth was on the negative side,” Manav Chopra, CMT, Head Research – Equity, Indiabulls Ventures told Moneycontrol.

According to him, support zone of 11,800 is likely to get tested on the downside as the near term trend is weak. He expects pullbacks to be short lived and traders should have a sell on rise approach for the Nifty.

“12,100 zone is likely to act as stiff resistance,” he said.