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Markets end lower as IT stocks nosedive; Sensex, Nifty 50 see worst week since 30 Sept

The domestic equities tumbled despite Asian peers rising  as investors took comfort from China easing their strict COVID-19 restrictions.Premium
The domestic equities tumbled despite Asian peers rising as investors took comfort from China easing their strict COVID-19 restrictions.

  • Both Sensex and Nifty 50 dropped a little over 1% each. Smallcap stocks witnessed heavy selling pressure in the broader market. A broad-based selloff was recorded across sectoral indices with IT stocks emerging as the biggest underperformer.

Global recession fear was back to haunt investors and IT stocks toppled sharply, extending their losses which took a heavy toll on Indian markets on Friday. Both Sensex and Nifty 50 dropped a little over 1% each. Smallcap stocks witnessed heavy selling pressure in the broader market. A broad-based selloff was recorded across sectoral indices with IT stocks emerging as the biggest underperformer. On the other hand, the rupee gained against the US dollar as the focus shifted toward Fed's next meeting where a softer tone in rate hike is on the cards.

Sensex shed 389.01 points or 0.62% to end at 62,181.67, while Nifty 50 tumbled by 112.75 points or 0.61% to close at 18,496.60. The gains in FMCG stocks could not offset the sharp selloff in IT stocks. India's volatility index rose by nearly 0.6%.

Stocks like HCL Tech, Tech Mahindra, Infosys, Wipro, and TCS were top 5 bears by falling in the range of 2-7%. Also, the downside in heavyweight Reliance Industries dragged the performance. Other stocks that witnessed a steep drop are -- Ultratech Cement, Tata Steel, Bajaj Finserv, and Bajaj Finance. On the other hand, top gainers were Nestle, Titan, Sun Pharma, and Dr. Reddy's Lab surging by over 1-2%.

In the broader market, on BSE, the SmallCap index slipped by 1%. On the sectoral indices, the IT index dipped by 901.26 points or 2.98%. While some significant downfall was also recorded in capital goods and metal stocks which further added to woes.

Vinod Nair, Head of Research at Geojit Financial said, "Today's downfall in the domestic market was sparked by IT stocks extending their losses after warning of a potential slowdown in business on global recession fears. This was further aggravated by banks losing their grip as PSBs suffered heavy sell-offs. However, global bourses were largely positive, although the Fed is expected to raise interest rates by 50 basis points next week."

The domestic equities tumbled despite Asian peers rising with Hong Kong's Hang Seng emerging as the best performer as investors took comfort from China easing their strict COVID-19 restrictions. Also, the focus shifted toward US inflation data scheduled next week which is expected to provide some clarity on Fed's stance in the forthcoming policy.

At the interbank forex market, after gaining to a session of 82.0950, the rupee ended at 82.27 against the US dollar on Friday compared to the previous day's closing of 82.42 per dollar. However, overall in the week, the rupee finished lower by at least 1.2% as the dollar sustained due to demand from corporates. Although the dollar has corrected substantially ahead of Fed's next policy meet where a 50 basis point is expected by the street, however, lower crude oil prices have pushed oil companies to bet on the greenback throughout the current week.

On the rupee performance, Jateen Trivedi, VP Research Analyst at LKP Securities said, "Rupee traded with gains at 82.30 up 0.13 points from yesterday as the dollar index weakness continued below 105$ along with weak Crude prices helping rupee gain some positive momentum. But the week saw the rupee lose strength from 81.40 to 82.30 down more than a percentage on a weekly basis. As the RBI hiked the rates along with further hikes on the cards sending rupee stumble for the week against the dollar."

This week, markets have been on a volatile note broadly even after RBI reduced the size of the hike in repo rate to 35 basis points. Currently, the repo rate is at its highest level since August 2018 at 6.25%. The softer 35 bps rate hike could not lift the market as RBI continued to stay on the 'withdrawal of accommodation' stance -- indicating that the battle for taming inflation is not over yet.

Overall, in the current week, Sensex contracted by 1.09%, while Nifty 50 plummeted by 1.07% --- making it their biggest one-week fall since the week that ended September 30.

Amol Athawale, Deputy Vice President - Technical Research, Kotak Securities said, "Profit taking was back in action as investors dumped IT, metal and realty stocks, even as benchmark Sensex still managed to end above the psychological level of 62000 mark. The recent trend indicates that markets may continue to exhibit intra-day volatility as investors keenly await the outcome of the US Fed's decision on interest rate next week."

However, according to Athawale, more than the rate hike, investors would be more interested in knowing about the forward looking statement on inflation and rate decision going ahead. Technically, the lower top formation on intraday charts and bearish candle on weekly charts is indicating further weakness from the current levels.

Giving an outlook for Nifty 50, Kotak Securities expert said, for short-term traders, the 20-day SMA (Simple Moving Average) or 18450 would act as a sacrosanct support zone, above which, "we could expect a one pullback rally till 18700." He added, in case of any further upside, the index could move up to 17800. On the flip side, below 20 day SMA or 18450, further sell off is possible till 18300-18200.

Whereas, on Nifty 50 ahead, Rupak De, Senior Technical Analyst at LKP Securities said, "On the daily chart, the index slipped below the recent consolidation, suggesting a rise in pessimism. Besides, the bulls failed to protect the 18,500. Going forward, the trend may remain negative with support placed at 18,350/18,200. On the higher end, 18,670 may act as a crucial resistance."

As for rupee, Anindya Banerjee, VP - Currency Derivatives & Interest Rate Derivatives at Kotak Securities sees USDINR remain range bound ahead of the US Fed on Wednesday. Banerjee said, "We expect a range of 82.00 and 82.50 on spot."

Meanwhile, LKP Securities analyst expects the rupee to range between 81.75-82.75.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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