In the wake of Covid-19, concerns of a global slowdown has begun to translate into caution regarding India’s growth as well as fiscal deficit target.
With no signs of containment of coronavirus, markets across the world continue to remain in the red even as the Nifty50 broke its 200-day moving averages (DMA) on Wednesday to close the session at 11678.50. The 200-DMA for the benchmark stood at 11,685.91, according to Bloomberg. Both the Nifty50 and Bank Nifty closed Wednesday’s trading session at over a three-week low.
The 200-DMA is a technical tool used by chart watchers to project long-term uptrends and downtrends in the market. Any fall below the 200-DMA is considered as a sign of upcoming potential weakness.
Interestingly, Bank Nifty, which is the gauge for banking stocks, edged lower towards its 200-day moving average (DMA) of 30,178.40 during the day but closed the session slightly higher at 30,306.85.
Laurence Balanco of CLSA told a television channel that Bank Nifty needs to hold its 200-DMA or else it can slide to 27,000. “Nifty can go to 10,580 if 200-DMA is broken. If S&P 500 falls below 3000, it would be a major concern for global markets,” he added.
This is not the first time that the indices have broken below their 200-DMA in the last one year. In early August 2019, both the Nifty50 and the Bank Nifty went below their 200-DMA levels. However, with the government announcing the corporate tax cut in mid-September, the indices rebounded above their crucial levels of 50 and 200 DMA.
Market participants say banking stocks have been helping the indices hold up over the last few quarters. However, certain amount of weakness could be seen building up in a few pockets recently, they say.
Gaurav Ratnaparkhi, senior technical analyst at Sharekhan by BNP Paribas, believes the Nifty is heading towards the Union Budget day low of 11,614. “That low can act as a support in the near term but it could get breached on the downside considering the current weakness in the market. Bank Nifty is relatively holding up well and is seeing a major support at 29,495. If you look at the broader market indices, the weakness is much more as compared to the large caps and this trend is expected to continue,” Ratnaparkhi said.
In eight of the last nine sessions, the Nifty50 closed lower and has given up 523 points or 4.3%.
Heavyweight Reliance Industries extended its fall for the fourth consecutive day on Wednesday. The country’s largest company by market capitalisation has lost Rs 70,873 crore during the period. While seven of the Nifty50 companies hit their 52-week lows on Wednesday, 60% of the broader Nifty100 index were trading below their 200-DMA levels, Bloomberg data showed.
In the wake of Covid-19, concerns of a global slowdown has begun to translate into caution regarding India’s growth as well as fiscal deficit target. According to a Nomura report, a severe scenario, which expects China’s lockdown to last until June, along with increased contagion cases in India, would cause a domestic slowdown, particularly in the consumption/services sectors.
“In this scenario, we believe GDP growth will slump further to 4% y-o-y in H1 2020, and slow to 4.7% in 2020, from 4.9% in 2019. A wider negative output gap will likely result in coordinated monetary and fiscal easing. We expect the RBI to cut the policy repo rate by a cumulative 65 basis points to 4.5% and the government to expand its fiscal deficit to 4% of GDP in FY21,” the note said.