Investment Insights
Is Nifty Fatigued? Week Ahead in Markets
Sunil Garg Managing Director, Chief Investment Officer
Table of Contents
In what seems like a FY24-25 redux, a weak Jun quarter in earnings (c5% growth)along with downward revisions, cast doubts on the consensus 12-15% EPS growth for FY25-26. In sync, the index has taken a bearish hue risking a breach of critical support in the 24500-600 area. Even relative to major global markets, the US and China, Nifty appears to have lost its mojo. Perhaps the only thing in favor is an oversold positioning, although that is not a catalyst for revival.
In the week ahead, attention will be focused on tech earnings, FOMC and the approaching tariff deadline of 1st Aug. With the trajectory for 2Q earnings better than consensus, the likelihood bettering the low bar of 5% is increasingly likely. Tariff deals, especially with the EU will be a dominant feature in the coming week – any resolution is likely to add to the current positive sentiment, supporting the uptrend, stretched as it may be. As for the FOMC, futures suggest a 95% unchanged probability.
Thus far, with about a third of S&P companies having reported, growth trajectory at 6.4% is better than the low consensus bar of 5% at the start of the reporting season.
Nifty – Tough Earnings Quarter
EPS growth for the Jun’25 quarter, currently trending at 7% (ex one-offs) is expected at c5% casting doubts on full year consensus of 12-15% that banks on an agri/rural consumption led revival for the rest of the year. This is a familiar pattern where consensus starts more positive only to revise down estimates – will it be different this time?
Banks have raised provisioning, more in anticipation rather than credit stress. ICICI Bank earnings were a standout while HDFC Bank takes the other end of the spectrum. There appear to be NIM pressures.
IT Services continue to face challenges – not just from uncertainty on US businesses. We continue to see this sector as slow to evolve in adapting to a changing, “AI-First” environment.
Consumer businesses, especially FMCG, face slower demand and margin pressures.
Nifty Technicals – Flag Or Red Flag?
With a series of declining highs and lows, the short-term trend for Nifty is down as also evidenced by trend indicators. While momentum is weak, the index is oversold suggesting the possibility of a pause for breath. The index has retreated back into the 24500-25000 congestion zone and needs to breakout above 25200 to negate the bearish hue.
Is Nifty Fatigued?
Source: Trading View
Weak Trend – With lower highs and lower lows, positioning below 20 and 50 day moving averages, the near-term trend is down.MACD has been in a downtrend for sometime. The 200 dma however remains upward sloping at 24152.
The near-term trend appears challenged within what still remains a medium-term uptrend.
Support & Resistance – Nifty has retreated back into theMay-Jun congestion range of 25200-24500. A breakout above 25200 will negate the bearish trend while a breakdown below 24500 will accelerate downside risks.
A Flag? – The decline in July (from 25600 to 24800) in a down-channel appears to be a flag formation, usually a bullish continuation –for this to play out, a breakout above 25200 will be critical.
Oversold – Nifty appears oversold, although not deeply with RSI at 40. While, the index is nearly 2 standard deviations below its 20day moving average, positioning is more neutral compared to the 50 day moving average.
An oversold positioning, especially against short-term averages, suggests the scope for a bounce or at least a pause for breath.
Rotational trends - Rotational trends are negative for private banks (ICICI Is an exception) and especially for IT Services. FMCG is fading in relative performance, while defensives such as pharma and healthcare appear better positioned.
Rotational Trends Favor Defensives
Source: Stockcharts
Week Ahead in Markets
MacroData
FOMC(30th) expected to keep rates unchanged (95% probability suggested by FED Funds Futures).
Jobs data– Openings (29th)expected to show moderation and Payrolls (1stAug) expected to show a decline (110K vs. 147K) and tick up in unemployment (4.2% vs. 4.1%).
Inflation– PCE (31st) expected to pick up from 2.3% to 2.5% (m/m from 0.2% to 0.3%).
Earnings
Tech earnings will be closely watched – MSFT, META and QCOM (30th) expected to post solid increases while AAPL, AMZN (31st)expected to report modest increases in earnings. Key will be guidance, especially on Data Centre Capex.
Financials– Visa (29th) and Mastercard(31st) expected to report solid increases. Watch for guidance on emerging threat from stablecoins.
Energy companies, CVX and XOM report on 1st Aug with sharp earnings declines, given continued weakness in oil prices.
Markets
US markets remain in an uptrend even if stretched on oscillators. Notably, S&P appears to be reviving relative to the techheavy Nasdaq.
US outperformance vs. Europe remains in place.
This can change rapidly should there be a favorable resolution on the US-EU tariff deadlock, similar to what unlocked performance for Japan.
Also watch for HSCEI as it tests resistance at the March 2025 highs.
Gold breakout not holding for now – the yellow metal is back in the 3200-3400 range. Bullish views will need to await a decisive breakout.
Bitcoin recovered from a large sale – above 112K, view remains constructive.
S&P - Reviving vs. Nasdaq?
Source: Trading View
S&P vs. Europe - Uptrend in Place
Source: Trading View
Gold - Back in Range - Bullish Views will Need to Wait
Source: Trading View
Bitcoin - Above 112K, view remain s constructive
Source: Trading View
