The fresh week will likely begin on a weak note for domestic markets. Gift Nifty 24,390 against Nifty August futures’ 24,670 indicates a sharp decline at open. Analysts said subdued results from Reliance Industries and Wipro will keep the market under pressure, though Kotak Mahindra Bank, HDFC Bank and Yes Bank came out with strong numbers. The focus will also be on the upcoming Budget, which is scheduled for July 23. The market will remain volatile this week, said experts. Besides, Thursday being the settlement week for monthly F&O contracts at the NSE, the market will remain volatile.

Risk of 5-10% correction

Emkay Global Financial Services said in a note: “We see the risk of an imminent 5-10% correction in the headline indices, with bigger drawdowns in SMID stocks. Nifty valuations are stretched at 21.4x 1YF PER, and a positive budget is now in the price. There are no additional positive catalysts, as we expect a tepid 1QFY25 earnings season with rate cuts coming only at end-CY24. A sell-off is likely to be led by Industrials (high valuations) and Financials (most liquid), but Durables (Autos) are vulnerable too. The best places to hide are Staples, Energy, and Technology, in that order. We remain constructive on India from a longer-term (>1 year) perspective, and would use a meaningful correction to increase exposure to the market.’”

The post-election rally has made valuations frothy, the domestic brokerage said. “The Nifty, at 21.4x 1YF PER, is 10% above the 5Y historic mean. Valuations for the NSE Midcap 150 (42x trailing) and NSE smallcap 250 (31x trailing) are also 52.5% and 35.5% (respectively) above the 5Y averages. Even accounting for the strong growth outlook, we see these valuations having some front-ended future returns and setting up the market for a one-time correction. Only meaningful upgrades in forward estimates could support such elevated multiples, and we do not see that in the next 1-2 quarters,” it added.

Markets last week

According to SBI Securities market round-up, Benchmark indices just about managed to close in the green for the week (+0.1% WoW) after falling 1.1 per cent on Friday. The Nifty 50 touched fresh record highs earlier in the week before correcting on the back of weak global cues. The broader markets, however, took a beating after disappointing 1QFY25 results from mid- and smallcap companies and overall profit booking in certain stocks/sectors such as railways/defence/EMS and capital goods ahead of the budget next week. The BSE Midcap/Small cap indices tumbled 2.6%/2.8% WoW with unfavourable market breadth. Sectorally, the IT and FMCG indices outperformed, while the economy-facing sectors such as Capital Goods, Metal, Power, and PSUs were the laggards this week. Globally, the US markets, too, took a breather, correcting from their record highs. US semiconductor stocks corrected amidst reports of further restrictions on trade with China for tools and components.

Ashwin Ramani, Derivatives & Technical Analyst, SAMCO Securities: The India VIX rose 2.14% on an Intraday basis and settled at 14.82. The profit booking was imminent as Nifty showed visible signs of the current rally peaking out. From 12th to 18th July, Nifty moved up from 24,502 to 24,801 while the put-call ratio (PCR), a sentiment indicator, moved down from 1.48 to 1.33, leading to a bearish price-PCR divergence.

“Put writers exited from the 24,800 Strike in Nifty, which led to a sharp down move in the Index on Friday. Strong call writing was observed at the 24,600 & 24,700 Strike in Nifty. The put writers (Bulls) are holding sizeable positions at the 24,500 Strike and the option activity at this strike will provide cues about Nifty’s future direction,” he said.

Shrikant Chouhan, Head of Equity Research at Kotak Securities, said: The markets were strong, led by strong earnings and commentary from the large-cap. IT services sector, while investors also positioned themselves for the upcoming FY2025 budget. On the economy front, CPI inflation in June increased to 5.1% from 4.8% in May due to a spike in vegetable prices, while IIP growth in May was 5.9% (April: 5.0%). FPI flows are expected to remain volatile.

Meanwhile, equities across the Asia Pacific region are down around one per cent in an early deal on Monday.

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