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Below the Quote on Weekly Market Outlook from Mr. Ajit Mishra, SVP – Research, Religare Broking

Elevated Bond Yields and Global Risks Deepen Market Correction

Market Summary

Markets ended sharply lower for the eighth successive week, extending the prevailing corrective trend amid sustained selling pressure and weak global cues.

The bearish tone was evident from the start of the week, with the Sensex declining 1.52% on Monday, followed by relatively modest losses over the next two sessions before another 0.79% decline on Thursday. Consequently, the Sensex shed 1,670.84 points to settle at 71,909.70, while the Nifty lost over 3% to close at 22,421.95.

Key Market Drivers

Global factors remained the dominant influence on market sentiment during the week. Rising US Treasury yields, persistent inflation concerns and elevated energy prices kept investors cautious. The surge in long-term US bond yields also raised concerns over global financial conditions and the relative attractiveness of emerging-market assets.

On the domestic front, economic activity remained resilient. India’s industrial production growth accelerated to 8.0% year-on-year in August from an upwardly revised 7.4% in July. Manufacturing output grew 9%, while electricity and gas supply expanded 12.3%. However, mining and quarrying output contracted 5.6%, highlighting some divergence across sectors.

Sectoral Snapshot

Sectoral performance remained under pressure amid the broad-based market correction. All key sectors, barring IT, ended lower, with auto, metal and FMCG bearing the brunt of the selling pressure and declining in the range of 4.6%-5.9%.

The broader market also remained vulnerable as sustained selling in benchmark indices increasingly weighed on investor sentiment. Consequently, both the midcap and smallcap indices declined around 3.5% each during the week.

Key Events to Watch

Developments in the energy market will remain a crucial trigger for market sentiment. Brent crude has retreated from its recent highs as crude exports through the Strait of Hormuz recovered closer to pre-war levels, supported by US military escorts and pipeline rerouting. The latest statement by the G7 nations regarding the release of strategic reserves has also contributed to the moderation in crude prices.

However, the rejection of Iran’s latest proposal on reopening the Strait of Hormuz, along with the possibility of renewed military action after the US midterm elections, continues to keep the energy risk premium elevated.

On the bond-yield front, participants will closely monitor the recent surge in yields to multi-year highs. The trajectory of yields in the coming week will remain particularly important for emerging markets such as India, given its implications for global liquidity and foreign portfolio flows.

The global macroeconomic calendar will also remain important, with key US high-frequency data, including the nonfarm payrolls report and ISM Manufacturing PMI, likely to influence market sentiment. Any signs of softness in the labour market could affect expectations around the Federal Reserve’s future rate trajectory and, consequently, global flows towards emerging markets.

On the domestic front, the RBI’s monetary policy meeting will be closely watched. The policy stance, inflation outlook and growth projections will provide important cues on the near-term trajectory of domestic interest rates and financial markets.

The coming week will also mark the beginning of the earnings season, with index heavyweight TCS and retail major DMart among the key companies scheduled to announce their results.

On the data front, India’s final HSBC Services PMI and Composite PMI readings for September are scheduled to be released on Tuesday, October 6.

Technical Outlook

Nifty

The Nifty corrected sharply after declining for eight successive weeks and tested the key long-term moving-average support zone comprising the 200-WSMA and 200-WEMA around 22,400-22,600, a zone revisited after nearly six years. The index also moved closer to the previous major swing low of 22,182.55 before closing at 22,421.95.

While the broader trend remains negative, the combination of key technical supports and oversold conditions could trigger a near-term rebound. Participants may adopt a hedged approach, with 22,800 as the initial upside target, followed by 23,100-23,200. A decisive break below the April low could negate the rebound possibility and drag the index towards 21,700-22,000. Hence, appropriate stop-losses and disciplined risk management remain important.

Bank Nifty

Bank Nifty declined over 2% after failing to sustain above its moving-average ribbon and breached the crucial 100-WEMA support near 54,823, before closing at 54,450.70.

Select private-sector banks displayed relative strength towards the end of the week, raising the possibility of a near-term rebound. The first hurdle is placed at 54,800, followed by 55,800-56,700. Participants should remain cautious and look for sustained strength above 54,800 before taking a more constructive view.

Broader Indices

After months of outperformance, the broader indices have also come under pressure during the recent leg of the benchmark correction. The decline reflects a broad-based deterioration in risk appetite rather than a single-session correction.

That said, the broader market remains in a relatively better position compared with the benchmark indices. With the earnings season beginning, selective opportunities could emerge, particularly in stocks that deliver positive earnings surprises or demonstrate stronger earnings visibility.

Strategy Ahead

The near-term market environment is likely to remain cautious, with global bond yields, crude oil prices, geopolitical developments and the RBI’s policy decision likely to provide further direction to global and domestic interest rates.

Resilience in domestic economic activity remains a constructive factor; particularly as industrial production and private-sector activity continue to show healthy momentum. However, persistent external headwinds warrant a measured approach towards fresh positions.

For traders, positions should remain aligned with the prevailing benchmark trend, with a focus on disciplined position sizing and clearly defined risk-management levels. Selective opportunities may emerge if global yields and crude oil prices stabilise, but aggressive positioning should be avoided until greater clarity emerges on the broader market trend.

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