Has the Global Downturn started?

Index	Open	Close	Change	% Chg
NIFTY 50	16228	15782	-629	-3.38%
NIFTY BANK	34092	33121	-1470	-4.25%

The Nifty 50 fell for the fifth week in a row following a selloff in the global markets. Is it a sign of a global downturn? During the week, the market witnessed selling in all sectors. Nifty close at 15782, and corrected about 629 points or 3.38 percent during the week. Similarly, the Bank Nifty was also down during the week and corrected by 1470 points or 4.25 percent.

The Nifty opened with a gap down of 184 points and during the week recorded a high of 16405 and a low of 15741. The bears were in full control of all trading days of the week. Likewise, weakness in the cryptocurrency markets also added to the already weak sentiments, though cryptocurrencies bounced back towards the end of the week.

Although on Friday the market closed in red, it was better than other trading days as the volatility index softened; the breadth turned positive, and mid-cap and small-cap stocks outperformed the large-cap stocks. In short, Friday was stock-specific action day and there was no clear sign of whether bulls or bears had the control. The chart below nicely summarizes the big picture. (Chart courtesy StockCharts.com).

Global Downturn

The market is grappling with inflation and rising interest rates, a weak rupee, geopolitical issues, and lockdowns in China. This all will affect the overall corporate earnings for Q1 and Q2. Stocks are under pressure as the market is pricing in the economic and earnings impact because of rising interest rates. Read here how the rising interest rates will affect you?

Though now it looks like the market has priced the inflation concerns and moved on to concerns of a global downturn. The consumption demand would decline because of inflation and rising interest rates. And lower demand and higher expresses could be a new normal for corporates in the medium term.

During the week, Brent crude was slightly lower, metals were down, and both gold and silver suffered losses. Normally one would think that since the oil and metal prices are down, so it would help in easing the inflation concerns. Until there is clarity on economic indicators, the market is in risk-off mode.

Inflation and Global Downturn

April inflation numbers based on the Consumer Price Index (CPI) were scary. The combined retail inflation CPI surged to 7.79 percent. Inflation is rising steadily in India; Jan 6.01 percent, Feb 6.07 percent, March 6.95 percent, and April 7.79 percent. Meanwhile, the effect is even more severe in rural areas. The rural April CPI was 8.38 percent as compared to 7.09 percent in urban areas. Is the inflation peaked or there is more to come?

FII’s and Volatility

The FIIs continued the selling spree and remained net sellers during the week. The volatility index India Vix closed at 23.49 up by 2.24 points or 10.52 percent week over week.

Market breadth

The market breadth remained in favor of the decliners, except for Friday when the market breadth turned positive, with 1420 shares advancing on the NSE against 709 shares that declined. The weekly advance-declined ratio was 0.42.

Similar to last week, in Nifty, out of 50 shares, 41 shares were the losers during the week and only 9 shares were gainers or remained unchanged.

TOP LOSERS OF THE WEEK

Company	Open	Close	Change	% Chg
Tata Steel	1260	1097	-187	-14.56%
JSW Steel	168	600	-90	-13.04%
Adani Ports	807	706	-105	-12.95%
Hindalco	434	388	-56	-12.61%
Coal India	186	169	-18	-9.63%

Adani Ports, Coal India, Hindalco, JWS Steel, and Tata Steel were the top Nifty losers of the week. Tata Steel tops the chart with 14.56 percent down. The other notable losers of the week were NTPC down 9.43 percent, SBIN down 8.06 percent, Bajaj Finance down 8.07 percent, Bajaj Finserv down 7.57 percent, and ONGC down 7.78 percent. View the list of all the Nifty 50 contributors.

TOP GAINERS OF THE WEEK

Company	Open	Close	Change	% Chg
Bajaj Auto	3490	3642	142	4.06%
Eicher Motor	2345	2433	71	3.01%
Divis Lab	4130	4281	115	2.76%
HINDUNILVR	2122	2194	45	2.09%
Asian Paints	3001	3064	48	1.59%

Asian paints, Bajaj Auto, Divis Lab, Eicher Motors, and HUL were the top gainers of the week. Bajaj Auto tops the charts with 4.06 percent gains. Some losers of the week, like ONGC, NTPC, and Coal India, have been gainers since the beginning of the year.

Check more details in our blog Nifty–Top Gainers and Losers.

SECTORS AND BROADER INDICES

All major sectors were down during the week because of the broad base selling. Nifty Metal was down 12.41 percent and Nifty Energy was down 10.56 percent. The Nifty consumer durables corrected about 5.82 percent and Nifty IT corrected 3.56 percent. Likewise, Nifty Auto was down about 1 percent.

Nifty FMCG, Pharma, and Metal are down continuously for three weeks. The Nifty IT is showing weakness because of rising employee costs and high churn. Similarly, the Nifty Auto is also down for two weeks in a row.

Similarly, both the Nifty Midcap 50 and Nifty Small-cap 50 underperformed the benchmarks and were down 8.21 percent and 6.01 percent each respectively during the week.

Sector	Open	Close	Change	% Chg
NIFTY IT	30491	29625	-1095	–3.56%
NIFTY FMCG	37078	36887	-392	–1.05%
NIFTY PHARMA	12728	12630	-191	–1.49%
NIFTY AUTO	10427	10412	-106	-1.01%
NIFTY METAL	5974	5313	-753	–12.41%
NIFTY OIL & GAS	7976	7647	-426	–5.27%
NIFTY MIDCAP 50	7749	7352	-470	–6.01%
NIFTY SMALLCAP 50	4360	4030	-361	–8.21%

THE WEEK AHEAD

Nifty Weekly Pivots

15500-16200 is the trading range for the next week. The support is around the 15300 level and if the market breaks this level, then such a break can drag the Nifty down to 15000 or below levels in the short term. The major resistance is around 16000 levels. View the Pivot Calculator.

What’s next for the global downturn?

As noted in the previous blog, the Nifty has made triple tops in the last seven months and failed to surpass the previous highs. The Nifty closing price is below the 50-day moving average and the 200-day moving average. And the 50-day moving average is below the 200-day moving average.

Stock-specific action would continue, because of Q4 2021-22 results and IPO, but you need to be aware of business cycles and right now, all indications are of a global downturn.

Are we close to the floor or is a relief really likely next week? Will the bulls return next week and stage a claim? In the above daily data chart, the RSI and MACD both are showing low numbers signaling oversold territory. There might be some relief rallies in between to keep the traders busy. Don’t catch the falling knife until the market has fully priced in the global downturn impact and the positive indicators appear on the horizon.

This article is only for educational purposes and is not investment advice. Please consult with your investment advisor before investing.