After breakneck rally, markets take a break

On Tuesday, benchmark indices closed down less than 1%

After a breakneck rally, Dalal Street seems to have become a tad wary of near-term gains in the market. At close on Tuesday, the benchmark indices were down about a per cent each, as investors booked profits in power, banking, realty and capital goods sectors.

The BSE Sensex declined 167 points, or 0.7 per cent, to close at 24,549, while the National Stock Exchange's Nifty fell 41 points, or 0.6 per cent, to close at 7,318. India VIX, the volatility gauge, fell 3.7 per cent.

With the elections behind, markets are now focusing on the new government and the initial policy measures it is likely to adopt. “In the absence of any immediate policy measure-related triggers, markets will look to the Budget for direction,” said U R Bhat, managing director, Dalton Capital.

Dhananjay Sinha, co-head (institutional research), Emkay Global Financial Services, said election-driven euphoric outbursts were normalising and the market was focusing on policy changes.

“The current multiples can be justified with real GDP (gross domestic product) growth of more than eight per cent, higher than our expectations of five per cent in FY14 and 5.5-6 per cent in FY15,” said Sinha.

Since February, markets have surged 20 per cent, as investors have rushed to park money in Indian equities on expectation of a stable government at the Centre.

Market players said now, movements in the market were likely to be restrained on the upside, as expectations of a Bharatiya Janata Party-led government coming to power had been met.

Declines could continue in the run-up to the Union Budget, likely to be announced in the first week of July.

“The positivity in the market has clearly been over-done. While people are still optimistic about the political situation in the country, you might see investors gradually booking profits till the time of the Budget,” said Nirmal Rungta, director and head (private client group), CIMB Securities.

For the Nifty, the upside is likely to be capped at 7,500; on the downside, it could even fall below the 7,000-mark, to 6,800-6,900 levels.

Declines in the Nifty on Tuesday were led by GAIL and Bhel, which fell 7.5 and 5.3 per cent, respectively. Among banking stocks, Punjab National Bank, Bank of Baroda and State Bank of India (SBI) fell about three per cent each.

In the previous two trading sessions, SBI had gained about 10 per cent, after the bank, on Friday, posted good numbers for the quarter ended March.

Analysts believe for the market to rise from current levels, foreign flows have to be supportive. After pumping in a record $20 billion last year, foreign institutional investors (FIIs) have invested $7.3 billion into Indian markets so far this year, raising fears of crowding the Indian market.

Global investment bank Credit Suisse, however, believes the Indian market is not "crowded trade" for foreign investors, as flows coming into the Indian market (as percentage of market-cap), at 0.9 per cent, were lower than the historical average of 1.3 per cent.

On Tuesday, FIIs were net-sellers by Rs 202.61 crore, while domestic institutions net-sold equities worth Rs 95.63 crore, according to exchange data.