Are You catching the IT Falling Knife?

Market Update - Thursday, 12 Feb

The IT stocks were smashed like nobody's business today. This marks the second time a smash like this has happened recently, with the earlier one occurring just a few days ago. As the saying goes, there is never just one cockroach in the cupboard.

Once a stock or a sector starts to fall, many people rush in to start buying because they feel they have caught the bottom, only for the next hammer to come through.

Looking at the broader market, it came off a little bit, down half a percent. This is no big deal as the market is still digesting the big move it recently had and is consolidating near 25,800. There is certainly no rush to go up. A good sign is that FIIs have started to reduce their short positions on India and are beginning to nibble on equity cash market positions.

• Nifty Junior looked decent, down only half a percent today.

• Mid-caps were also down half a percent, and small-caps were down 0.7%.

• Bank Nifty was absolutely flat, which is telling because Bank Nifty typically leads the market in either direction and currently shows no desire to go down.

• Gold is flat, down 0.34%. As the Chinese market enters a holiday for New Year celebrations, gold and silver will likely be very quiet until the fourth week of the month.

• Silver is down 0.88% and has gone flattish. It is healthy for both to consolidate and regain ground.

Other Market Triggers

• The heat map is stark red primarily due to IT stocks like HCL Tech, TCS, Infosys, and Wipro being smashed down.

• Reliance was also down. Interestingly, Bajaj Finance shared insights into how AI is turning around their productivity, which should provide a tailwind going forward.

• On the Nifty heat map, BPCL, IOC, Divi's Lab, LTIM, Ambuja Cements, and DLF all lost ground.

• The mover of the day was Avanti Feeds, which has been remarkably strong since the US deal, up another 18% post Q3 results and hitting new highs.

U.S. Market Updates

• In the US, the previous session saw the Russell and Dow Jones down, while the Nasdaq rose 0.3%. IBM was smashed down 6%, and ServiceNow, Intuit, Salesforce, and Immersion were down 4 to 6%. Some of these stocks may be part of the Weekend Investing US stock strategy, but these are not recommendations, as per the disclaimer.

• The S&P 500 remained flat, while the Nasdaq heat map was a mixed bag with Palantir, Netflix, Cisco, Google, and Amazon losing ground. MU was up 10% in a very volatile session for some stocks.

What to watch next ?

• Central banks now pick up about 800 to 1,000 tons of Gold annually, a significant increase from pre-2022 levels. Investment demand, including physical bullion and ETFs, accounts for 43% or 2,100 tons.

  The most interesting part is that the 5,000-ton supply is not growing. There have been zero new mining discoveries in the last three years, despite rising prices which usually encourage exploration.

• Mine production only grows by 2% to 3% yearly. Furthermore, much of the demand from jewelry, central banks, and physical investment is sticky and does not easily return to the market pool.

• With constrained supply and strong demand, the direction of prices seems clear.

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