It was a truncated week with four trading sessions. Markets gained on two of the four sessions and lost on two. While indices appeared to have ended flattish with a negative bias, the volatility was huge. BSESENSEX lost 207.43 points or 0.28% to close at 75,157.26 points while NIFTY lost 75.90 points or 0.33% to close at 22,828.55 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.24%, 0.28% and 0.23% respectively. BSEMIDCAP was down 0.58% while BSESMALLCAP was down 0.15%. The intraweek lows made on Monday and highs made on Friday were at 71,425 points and 75,467 on BSESENSEX while they were at 21,743 and 22,923 on NIFTY. Effectively we were all over the place and closed marginally negative in the four-day week.
The Indian Rupee was volatile and lost 82 paisa or 0.96% to close at Rs 86.05 to the US Dollar. Dow Jones was volatile like a roller coaster. The intra-week low was at 36,611 points while the high was at 40,778 points. Dow gained 1,897.85 points or 4.95% to close at 40,212.71 points. Dow gained on two of the five trading sessions and lost on three.
RBI in its first bi-monthly policy review meeting, unanimously cut Repo rate by 25 basis points to 6%. This is the second consecutive rate cut affected by RBI. It also moved the stance to ‘accommodative’.
The entire action globally was focused on one man and one event. Donald Trump and his reciprocal tariff war with 75 countries. The tariff war with China seemed to be reserved for the finale. It began with 34% and this was over the 20% base rate set right at the beginning. It was then raised by an additional 50%. Then the same was raised by another 41% to make a total of 145%. China kept pace and had a tariff which was 20% lower. The drama did not end yet as there were rumors on Tuesday that tariffs were kept on hold for 90 days. This saw Dow go on a wild trip and ultimately when nothing came out, it closed with losses. The announcement of keeping tariffs other than the 10% and what was announced on autos and metals remained in force with immediate effect post announcement on Wednesday. China had special tariffs at the 145% level.
Tariffs have now become a daily warfare and one can expect changes at the drop of a hat. As it is the pharma sector is still waiting as to what would happen. I believe it is best to leave Trump and tariffs aside and carry on with the markets. The ground reality is quite scary. US has a trade deficit of 1.2T Dollars on an import of 3.26 T dollars and export of 2.06 T dollars. Of this the trade deficit with China is 296 billion dollars.
Results season has begun with TCS announcing results which were in no man’s land, being neither good or bad. This would set pressure on other IT results to be declared as people would be waiting for cues from others. It now is up to the rest of the pack to deliver results going forward.
India is in a sweet spot as tariffs are concerned and would be able to negotiate a favorable deal. However, till the deal is concluded this would be a hindrance to the smooth functioning of the markets. To make money in the markets, one would have to look beyond tariffs and not get bogged down with the same.
Coming to the markets in the week ahead which has a truncated three day week with holidays on Monday and Friday, expect markets to remain volatile. The after effects of tariff seem to be subsidizing until new bombs explode. It appears the fall in NIFTY to 21,743 is more or less a bottom for the time being. The rebound was swift on expected lines. Markets would look for directions on the tariff front in the 90 day window set by Trump. For the short week ahead and short term, support exists at levels of 22,500 and lower at levels of 22,100 points on NIFTY. On the resistance side, the immediate level is 22,950 and higher up at 23,450-500 points. Similar levels on BSESENSEX would be at 74,200 points and 73,000 points while resistance would be at 75,550 points and higher up at 77,050-77,200 points.
The strategy would be to concentrate on large cap stocks as they would offer safety and with the correction that has happened scope for upside in the medium term.
Trade cautiously.