Tuesday's crash doesn't mean the correction is over

No bulls in sight (Shashank Parade/PTI)
No bulls in sight (Shashank Parade/PTI)

Summary

  • As investors pull out money ahead of key US fiscal decision, analysts anticipate further selling in the market

Mumbai: Investors took money off the markets ahead of the fiscal year end as key US rate decisions loomed, even as experts cautioned about further losses after a year of sterling gains.

The benchmark Sensex and Nifty indices fell over 1% to the lowest in five weeks, with losses over the last one week to more than 2%. While the Sensex fell 1% to 72,012.05 points on Monday, the Nifty closed 1.1% lower at 21,817.45. The broader markets suffered too, with both Nifty Smallcap 250 and Nifty Midcap 100 settling 1.2% lower. The Nifty IT index slipped 2.9%, dragged down by Tata Consultancy Services Ltd (TCS) which fell 4.37%. Among index heavyweights, Infosys Ltd, Reliance Industries Ltd (RIL), Larsen and Toubro Ltd (L&T) and ITC Ltd led the losses.

With the Nifty falling below the crucial support level of 21,900, market experts said it may slip by another 200-300 points.

"So far as Nifty goes, we expect 21,800 to act as a support, which, if broken decisively, could result in the bellwether testing 21,100," said Gaurav Dua, head, capital market strategy at Sharekhan by BNP Paribas. He explained that the markets had run up phenomenally, especially the mid- and small-cap segments, “where speculative froth had arisen and this is being corrected, which is healthy".

The Nifty has gained 28% in the last year while the Sensex is up 24%. Market participants believe a further correction cannot be ruled out, given regulatory caution about a potential bubble burst.

Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch last week spoke of "pockets of froth" in the market, pointing to the need for caution. “Some people call it a bubble, some may call it froth. The question is, it may not be appropriate to allow that bubble or froth to keep building. Because if it keeps building, it will burst, because by definition, bubbles burst," Buch said.

Meanwhile, investors are keeping a close watch on the US Federal Reserve, whose rate-setting committee is meeting over two days. Markets will parse every word of Federal Reserve chair Jerome Powell to figure out the interest rate cuts expected to begin later this year. Three rate cuts are being expected already, but with the Bank of Japan raising interest rates for the first time in 17 years, the Fed commentary on Wednesday will be keenly awaited. The Federal Open Market Committee will announce its decision on Wednesday.

“The Fed will push back against market expectations of June rate cuts and speak of the inflation fight still being work in progress," said Ajay Bagga, a market expert. Presidential elections are normally positive for the US markets, and that should help in providing a positive global backdrop this year, he added.

"Fears of lower quantum and a reduction in the number of Fed rate cuts in 2024 on the back of recent US data have weighed on sentiment," Saurabh Jain, assistant vice president of research at SMC Global, told Reuters. Hawkish commentary from the Fed on Wednesday could hurt foreign inflows, Jain added.

All said, India continues to remain in a sweet spot, given its strong growth prospects.

Investors could use steep corrections as buying opportunities, a UBS Global Wealth Management note dated 7 March said. “We believe that India offers the best structural growth story among other large economies."

“Overnight brokerages in the US are baking in a possibility of two rate cuts instead of three and that is not good for technology as a whole," said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies. “Plus, there is the TCS issuance at a discount, which weighed on the Nifty," he said.

TCS was Nifty's worst loser on Monday, as 22 million shares or 0.6% equity changed hands at an average price of 4,039. Tata Sons planned to sell the shares in block deals to raise over a billion dollars, Mint reported on Monday. Mutual funds are expected to have picked up the shares sold by Tata Sons, given the buying activity seen on Tuesday.

Both domestic institutional investors (DIIs) and foreign institutional investors (FIIs) were net buyers on Tuesday. On Tuesday, DIIs net bought 7,449.49 crore and FIIs 1,421.48 crore.

Aashish Sommaiyaa, CEO of WhiteOak Capital Asset Management, anticipates a market upturn with upcoming events such as the general election, budget, and potential changes in US policy. He said the upward trend is expected to be driven by large-cap stocks due to their relatively low valuations.

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