Indian equity benchmarks witnessed a wild swing on Wednesday, with both Sensex and Nifty hitting new highs intra-day but ending the session with the biggest losses in many months amidst profit booking. Concerns about the rise in Covid cases and elevated valuations in the mid and small-cap stocks also weighed on sentiments. During the day, the Sensex rose to 71,913 before giving up the gains in the latter half of the session and ending at 70,506, a decline of 931 points or 1.3 per cent. Wednesday’s close is the worst fall for Sensex since October 26, 2023. The Nifty ended the session at 21,150, a decline of 303 points or 1.4 per cent, the worst fall since March 13, 2023.
Profit booking after the good run was cited as the primary reason for the market rout. The benchmark indices have made gains in the last seven weeks on the back of strong macro numbers, the prospect of rate cuts by major central banks in the Western world, and the results of the recently concluded state elections, which have raised bets for policy and regime stability.
However, investors have been taking money after the run-up.
“The long build-up was based on the assumption that there would be continued buying by foreign portfolio investors (FPIs). But they have been booking profits this week. A bit of correction is par for the course. One cannot say the market trajectory has changed dramatically,” said UR Bhat, cofounder of Alphaniti Fintech.
Foreign Portfolio Investors were net sellers to the tune of Rs 1,322 crore, according to provisional data from exchanges.
Concerns about valuations, especially in the mid and small-cap space, after gains this year and the recent spurt in Covid cases, have also been weighing on investors’ minds. The Nifty Midcap 100 is trading at a 12-month forward price to earnings (PE) of 26.6 against a five-year average of 23.2, and the Nifty Small Cap 100 is trading at 12 months forward PE of 20.5 against a five-year average of 16.8. India recorded 614 Covid cases in the last 24 hours, the highest since May 2021. Cases of the 20 JN.1 sub-variant have also been detected in three states.
“There is hardly any margin of safety left in some pockets of mid- and small-caps after a significant run-up; thus, taking out some froth is healthy for the market. Nevertheless, India’s structural story is getting stronger with a stable government, a healthy outlook for corporate earnings, and an improving macro picture. Hence, any material dip could again provide an investment opportunity in quality stocks,” said Sanjeev Hota, head of research at Sharekhan by BNP Paribas.
The macro data from the US and UK will give further cues to the market.
The market breadth was weak, with 3,234 stocks declining and 612 advancing. Barring one, all Sensex stocks fell. Reliance Industries declined 1.2 per cent and contributed the most to Sensex’s decline.
Stocks of non-banking finance companies declined after the Reserve Bank of India on Tuesday tightened norms for lenders relating to making investments in units of Alternative Investment Funds (AIFs).
First Published: Dec 20 2023 | 8:49 PM IST