SHARP PLUNGE IN NIFTY VINDICATES OUR CAUTION

SHARP PLUNGE IN NIFTY VINDICATES OUR CAUTION

WORLD MARKETS                             

US indices fell 1.1%-1.5% yesterday, weighing declines in oil, concerns about global growth, and the implications of the Federal Reserve's rate hike decision.

Materials shares were among the hardest-hit due to a sell-off in commodities on the back of lingering worries about a slower-growing China. Nymex oil settled down 85 cents or 1.8% at $45.83 a barrel. Copper slumped more than 3.5% after the Asian Development Bank cut its growth forecast for China.

Biotech shares extended losses into a second day after U.S. Democratic presidential candidate Hillary Clinton said she would propose a monthly cap of $250 on prescription drugs.

Auto stocks were under pressure following news that Volkswagen would make a provision of $7.3 billion after allegations it cheated on vehicle emission tests.

The July US Federal Housing Finance Agency's home price index showed an increase of 0.6%.

European markets tumbled 2.8%-3.8%. Volkswagen collapsed nearly 20%—following declines of 18% on Monday—on the news that it could face an $18 billion fine in the U.S. for rigging emission tests on its diesel vehicles. Other Auto stocks also came under pressure after French Finance Minister called for a Europe-wide probe into the industry.

Dollar index edged higher with the euro near $1.11. Gold settled at $1125 an ounce, down $8.

AT HOME

After trading with a positive bias in the morning trade, benchmark indices nosedived in the noon trade on the back of sell-off in European markets to end with deep cuts of more than 2%. Sensex sank 541 points to settle at 25652 while Nifty finished at 7812, down 165 points. BSE mid-cap and small-cap indices lost 1.9% and 1.6% respectively. All the BSE sectoral indices ended in red with Metal index leading the tally, giving away 4.2%, followed by 3.1% each cut in Capital Goods and Power indices.

FIIs net sold stocks and index futures worth Rs 1052 cr and 697 cr respectively but net bought stock futures worth Rs 1248 cr. DIIs were net buyers to the tune of Rs 378 cr.

Rupee depreciated 16 paise to end at 65.875/$.

The Asian Development Bank (ADB) yesterday lowered growth projections for India for the current fiscal to 7.4%, from the 7.8% earlier, citing weak monsoon, poor external demand and inability of the government to push economic reforms in Parliament.

OUTLOOK

China's September Caixin flash manufacturing PMI has come in at 47, which is down from 47.1 in August and weakest since 2009.

Asian markets are trading with cuts of 1-2.5% and SGX Nifty is suggesting about 60 points lower opening for our market.

For past two-three sessions we had been cautioning that the recent rebound is just a pullback and the medium term trend continues to be down. We had also said that after a 500 point pullback, Nifty was closer to important resistance levels placed in the vicinity of 8100 and had advised building fresh longs only above that level.

Yesterday, the benchmark, after touching a high of 8022, plunged sharply to end at 7812, vindicating our view.

Yesterday's steep fall also generated a sell on the hourly chart and next downside target to eye is 7736, which is the 61.8% retracement level of the 7540-8055 upmove. A breach of 7736 would open up the possibility of the retest of the 7540 bottom.

Stay short with the stop loss of 7925, which is the immediate hurdle on the hourly chart.