Sensex, Nifty turn lower; broader markets crash as oil tops $116/barrel. What lies ahead?

ETMarkets.com

Sensex fell about 40 points to trade near 74,100, while Nifty 50 fell about 20 points to trade around 22,915, as of around 10.30 am. Broader markets, however, crashed, with the Nifty Smallcap 250 index plunging nearly 2% and the Nifty Midcap 100 index dropping 1%.

Trent shares soared 6% to lead gains on Sensex after the Tata Group company’s earnings impressed the market. IndiGo, Tech Mahindra, Infosys, Eternal, Sun Pharma, Kotak Mahindra Bank, HCL Tech and TCS shares meanwhile gained 1-3%. Meanwhile, SBI and BEL shares fell around 2% each to lead losses on the benchmark index, while UltraTech Cement, Tata Steel, M&M, L&T, Reliance Industries, Maruti Suzuki, Bharti Airtel and Titan shares fell nearly 1% each.

Among the sectors, Nifty Consumer Durables plunged nearly 2% to lead losses while Nifty FMCG, Nifty Metal, Nifty PSU Bank, Nifty Realty and few other indices fell nearly 1% each. Bucking the trend, Nifty IT jumped around 2%. The overall market breadth turned sharply negative, with NSE seeing 2,398 declines against 790 advances, while 101 stocks remained unchanged.

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What lies ahead for Dalal Street?

The crude oil headwind is getting stronger, warned VK Vijayakumar, Chief Investment Strategist at Geojit Investments. He noted that there are reports of the US likely resuming strikes against Iran after the mid-term elections which are due on November 3. Even though FII selling has turned weak with occasional buys in recent days, the market construct appears unfavourable for a rally, the analyst said.

An interesting trend is the rally in the small-cap segment after the brutal selloff during last week, Vijayakumar pointed out. Since the selloff was triggered by forced liquidation of margin-funded long positions, DIIs and investors are using the opportunity to buy growth stocks in this segment despite their high valuations, he said, adding that sustained capital flows into mid-and small-cap funds facilitate accumulation of these stocks. “However, investors should keep in mind the fact that value buying opportunities are in large-caps which are temporarily out of favour due to FII selling.”

The impressive 3.4% US Q3 GDP numbers and high PCE inflation number at 3.6% mean that US bond yields will remain elevated and will continue to attract safe-haven funds, according to the analyst.

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Technical view on Nifty

While turbulence is expected early in the day, Anand James, Chief Market Strategist at Geojit Investments, will wait for Nifty’s direct fall below 22,715 to abandon upside hopes.

That said, he will continue to aim for the 23,050 objective pencilled in yesterday, as long as Nifty’s dips are contained above 22,820.