We had mentioned in last week’s closing report that Nifty, Sensex were trendless. The major indices of the Indian stock markets were range-bound initially this week and suffered a sharp correction on Friday to close around 1% lower following a huge decline on Friday with the exit of Britain from the European Union. The trends of major indices in the course of the week’s trading are given in the table below:
Higher global markets and a healthy rise in global crude oil prices, and the strong trend in US premarket futures lifted the key equity indices on Monday. The markets opened low prompted by news of Reserve Bank of India (RBI) Governor Raghurram Rajan formally declining a second term. However, healthy buying in automobile, IT (information technology) and capital goods stocks helped pare initial losses. There were major upcoming global event risks such as referendum in Britain on whether or not to stay as a part of the European Union (EU). Further, investors have been concerned about the US Federal Reserve Chairwoman Janet Yellen's testimony to the US Congress. Value buying after the initial downslide lifted prices. Besides, higher Asian and European markets buoyed domestic key indices.
In addition, an appreciation in rupee's value after it fell to a low of 67.70 restored investors' risk taking appetite. The Indian rupee opened on a weak note as investors reacted to the news on Rajan's exit. It touched a low of 67.70 against a US dollar, but sales by exporters and sovereign intervention pushed it back below 67.40 levels on spot. IT and pharma sector stocks traded firm on continuous buying support, while banking stocks also traded with sideways to firm sentiments.
Profit booking, combined with negative global cues and a weak rupee, subdued the Indian equity markets on Tuesday resulting in the key indices trading marginally in the red during the mid-afternoon session with selling pressure witnessed in banking, consumer durables and capital goods stocks. The Asian markets gained on the back of increased chances of Britain staying on in the Eurozone. The island nation was to go in for a referendum on this on Thursday. However, profit booking, consolidation and negative European markets dragged the key domestic indices lower. Further, investors were seen concerned about US Federal Reserve Chairperson Janet Yellen's testimony to the US Congress. In its two-day policy meet last week, the US FOMC (Federal Open Market Committee) decided to maintain its key lending rates. The US Fed signalled its intention to limit the times it might increase key lending rates due to weak domestic jobs market. A hike in the US interest rates could potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India. Besides, lower global crude oil prices and a weak rupee eroded investors' risk-taking appetite.
Uncertain global situation, profit booking and a weak rupee depressed the Indian equity markets on Wednesday, as selling was witnessed in automobile, capital goods and FMCG (fast moving consumer goods) stocks. The BSE market breadth was skewed in favour of the bears -- with 1,597 declines and 988 advances. Initially, the key indices opened positive as investors believed that Britain's upcoming referendum on whether or not to stay on in the European Union would go in favour of staying with EU. India's cabinet on Wednesday cleared the base price for the country's largest spectrum auction to date, expected to fetch around $85 billion at the approved reserve price, address the menace of mobile phone call drops and give a push to 4G data communications. The approval was given at a meeting of the cabinet chaired by Prime Minister Narendra Modi.
On Thursday, both the key indices opened on a flat-to-positive note, in-sync with their Asian peers, as investors were seen optimistic that Britain would stay on in the European Union. Increased chances of Britain staying on in the European Union, combined with higher crude oil prices and a strong rupee, buoyed the Indian equity markets. The key indices closed the day's trade with appreciable gains, as healthy buying was witnessed in banking, automobile and healthcare stocks. The Indian rupee strengthened by 23 paise during the day's trade. It closed at 67.25-26 against a US dollar from its previous close of 67.48-49 to a greenback.
In a stunning reversal of what was widely expected, Britain on Friday decided to exit the European Union (EU), rattling global financial markets. Prime Minister David Cameron, who had strongly backed the "Remain" vote, said he was quitting. Britain's decision to opt out of the European Union (Brexit) rattled Indian financial markets on Friday, while pulling the rupee to around Rs68 to a US dollar. At one time, the Sensex was down by over 1,000 points but closed down 604 points. The pound sterling fell to its lowest level against the US dollar in 30 years -- and the euro was down by under 3% -- as the result of Thursday's historic referendum that ended Britain's 43-year association with the EU. England and Wales voted strongly to exit while Scotland and Northern Ireland backed the "Remain" vote. UK Independence Party leader Nigel Farage, who had been campaigning for 20 long years to dump the EU, called the Friday result UK's "Independence Day". The result was a narrow affair: 51.9% vote for Brexit against 48.1% vote for 'Remain'. Nikkei fell by 7.92%, Hang Seng by 2.92% and DAX was down 7% at the time of writing. FTSE was down 4.4% while IBEX of Spain was down by over 12 %. Gold was up by almost 5% while crude oil fell by almost 4%. We expect the Indian market to move sideways.