Sensex Plummets: Investors Shed Rs 13.2 Trillion in 3-Day Carnage

On Thursday, the BSE Sensex experienced a significant drop of over 835 points, reaching 70,665.50 in the early morning. The 30-share index has witnessed a sharp decline of more than 2,760 points from its 52-week high of 73,427.59.

Indian markets extended their decline on Thursday, with the Sensex losing over 2,760 points from its 52-week high. The Nifty50 Index also witnessed a substantial drop of about 840 points during this fall.

Domestic equity markets recorded a third consecutive session of decline on Thursday, with the headline indices dropping another percent early in the session. Dalal Street sentiments were impacted by a combination of domestic and global factors, adding to the cautious mood ahead of the weekly expiry of Nifty50 index F&O contracts.

Investors faced a substantial loss of notional wealth, with a staggering Rs 13.2 lakh crore wiped off as the total market capitalization of BSE-listed companies plummeted to Rs 367.03 lakh crore on Thursday.

On Thursday, BSE’s Sensex plummeted by over 835 points, reaching 70,665.50 in the early morning. The 30-share pack has experienced a significant drop of more than 2,760 points from its 52-week highs at 73,427.59, which were recorded on Tuesday, January 16. Concurrently, NSE’s Nifty50 index also saw a decline of over 285 points, reaching 21,285.55 during the day, resulting in a three-day fall of nearly 840 points since Tuesday.

Investors witnessed a significant loss in notional wealth, amounting to Rs 13.2 lakh crore, as the total market capitalization of BSE-listed companies fell to Rs 367.03 lakh crore on Thursday, down from its close at Rs 380.23 lakh crore on Tuesday. The fear gauge, India VIX, is currently hovering around 15 levels. Several factors are contributing to the negative sentiment on Dalal Street.

Global traders are bracing for a postponed rate cut by the US Federal Reserve following positive economic data. Reuters reports indicate a 66.9% chance, down from 81% in the previous session, of a rate cut of at least 25 basis points in March. The hawkish stance of US Fed officials is contributing to the prevailing sentiment.

Global markets are experiencing a decline, influenced by a cloudy economic outlook in China and the anticipation that the global easing cycle may not commence as soon as previously anticipated. US Treasury yields have risen as investors adjust their expectations, scaling back bets on an early rate cut by the Federal Reserve, possibly starting in March.

The dollar index reached a new one-month high on Wednesday and maintained its position on Thursday. This surge followed robust US retail sales data, which suggested economic strength and reduced expectations for immediate rate cuts by the Federal Reserve. Additionally, officials from the European Central Bank (ECB) resisted expectations for rate cuts in the eurozone, contributing to a decline in equity market optimism.

Geopolitical tensions have escalated as the US military reported conducting strikes on 14 Houthi missiles poised for launch from Yemen. This marks the fourth day of US strikes in less than a week, heightening tensions in the Red Sea. Recent attacks by the Iran-allied Houthi militia on ships in the region have disrupted trade between Asia and Europe since November, raising concerns among major powers.

There is a growing concern that heightened geopolitical tension could adversely impact the global economy. According to the Chief Economists Outlook released by the World Economic Forum (WEF), around 70% of economists believe that the pace of geo-economic fragmentation will increase in the current year.

India Inc has witnessed a series of disappointing financial results, causing concern among investors. Blue-chip companies such as HDFC, ICICI Prudential Life Insurance, and LTIMindTree have reported lackluster earnings, leading to a negative impact on market sentiment. The stocks of these companies have experienced significant declines as a consequence of subdued financial performance.

Several factors contributed to this downturn, with HDFC Bank’s quarterly results being a crucial factor. The market was disappointed due to visible pressure on net interest income, attributed to slower growth in deposits. Mukesh Kochar, National Head of Wealth at AUM Capital, highlighted the impact of the strengthening dollar index and a 10 basis points increase in US yields. The Federal Reserve governor’s cautious stance on an early rate reduction, expected in March, and the ongoing challenges in Chinese GDP growth also contributed to the market downturn.

Foreign Portfolio Investors (FPIs) turned net sellers of Indian stocks, selling approximately Rs 10,578.13 crore on Wednesday, according to provisional data from the NSE. In the derivative markets, FPIs reduced their holdings of future index long positions by 20.43%, increased future index shorts by 28.07%, and in index options, there was a 27.50% decrease in call longs and a 1.42% increase in put shorts, as per data from Geojit Financial Services.

The significant FPI sales in India were attributed to concerns about rising bond yields in the United States. However, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggested that any FPI selling might be offset by Domestic Institutional Investors (DIIs) buying in fairly valued large-cap stocks with growth potential.

1. Market Performance in 2023:
   • The Nifty50 index, representing the top 50 companies on the National Stock Exchange (NSE), experienced a significant surge of about 20%.
   • Both midcap and smallcap indices outperformed their largecap counterparts, with midcap rising by 47% and smallcap by 56% during the year.
2. Valuation Discomfort:
   • Despite the strong market performance, there is a concern about “valuation discomfort.” This discomfort arises when the valuations of stocks, particularly in the mid and smallcap segments, become relatively high compared to their fundamentals.
   • The passage suggests that the potential for further upside in the market seems bleak, indicating that the stocks may be overvalued.
3. Near-Term Risks:
   • The CIO (Chief Investment Officer) of PGIM India Mutual Fund, Vinay Paharia, highlights some near-term risks to the Indian markets.
   • Premium valuations in the mid and smallcap segments are mentioned as a concern. This means that these stocks are trading at higher multiples compared to their earnings, which could pose a risk if market sentiment changes.
   • Adverse results in union elections and rising geopolitical issues are identified as additional risks that could impact the market in the short term.
4. Cautious Approach:
   • Vinay Paharia expresses caution regarding the near-term return potential of the equity markets. This caution is likely due to the combination of high valuations and the identified risks.
   • Despite the near-term caution, Paharia remains optimistic about the medium-to-long-term prospects of the equity markets. This suggests that, while short-term challenges are acknowledged, there is confidence in the market’s resilience over a more extended period.

Technical Setup:

• Support and Hurdles: Technical analysis indicates that the Nifty index has a support level at 21,407 and faces hurdles at 21,807. These levels are crucial as they represent points where the index may experience buying or selling pressure.
• Options Data: The options data suggest a potential trading range for the Nifty between 21,100 and 22,000. This range is derived from the analysis of options contracts and indicates the anticipated price movement within this specified bracket.

Market Sentiment and Catalysts:

• Negative Catalysts: According to Prashanth Tapse, Senior VP (Research) at Mehta Equities, there are six negative catalysts affecting market sentiment.
  1. Banking Stock Caution: There is caution specifically related to banking stocks, suggesting concerns or risks associated with this sector.
  2. Global Uncertainties: Global uncertainties are identified as another negative catalyst. Economic or geopolitical uncertainties on a global scale can impact market sentiment.
• Weight on Market Sentiment: The negative catalysts are stated to be weighing on the market sentiment. This implies that these factors are contributing to a cautious or bearish outlook among investors.

Business Today issues a disclaimer, emphasizing that their provision of stock market news is solely for informational purposes and should not be interpreted as investment advice. The publication encourages readers to seek guidance from a qualified financial advisor before making any investment decisions.

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