Markets skid for second day as inflation, valuation concerns' weigh

Analysts said the inflationary pressure seen by companies such as HUL and Nestle India have made the Street temper down its earnings growth expectations

The benchmark indices fell for the second day as investors assessed the impact of rising inflation on corporate earnings. Valuation concerns amid spike in bond yields and commodity prices also led to some profit taking following the sharp up move in recent weeks.

The Sensex fell 456 points, or 0.74 per cent, to end at 61,260, the Nifty 50 index tumbled 152 points, or 0.8 per cent to close at 18,266. The Nifty Midcap 100 declined 2.2 per cent for a second day in a row, with 77 components declining. The Nifty Smallcap100 dropped 2.4 per cent, adding to 1.7 per cent fall in the previous session.

Analysts said the inflationary pressure seen by companies such as Hindustan Unilever and Nestle India have made the Street temper down its earnings growth expectations.

Metal stocks fell as base metal prices slipped after China announced measures to tackle the energy crisis, which had pushed up global commodities prices. The BSE Metal index fell 2.3 per cent, with Vedanta and Hindalco dropping nearly 4 per cent each.

The earnings announcement so far has been a mixed bag. Out of the eight Nifty 50 firms that have reported earnings, four have beaten analyst estimates, while two have met expectations and two have disappointed.

“The ongoing market correction is not an overreaction and can sustain in the near-term due to high valuations," Vinod Nair, Head of Research, Geojit Financial Services.

Globally, the September quarter earnings season has put a spotlight on stagflation fears. Investors' risk appetite has been hit by rising energy costs and reduced central bank support. The US Federal Reserve is set to begin its tapering programme by next month. However, the US central bank has indicated that interest rate hikes are not imminent.

The India Vix index rose 5.4 per cent to 18.3, signaling more volatility in the days ahead.

"The tepid start to the earnings season has led to profit-taking, and global cues have also not been very encouraging. Going ahead, we expect choppiness to continue due to the weekly expiry and the scheduled earnings of some of the index majors. It's prudent to restrict leveraged positions for the time being and let the markets stabilise," said Ajit Mishra, VP, Religare Broking.

The market breadth was negative, with 2,322 stocks declining and 978 advancing on BSE. 311 stocks on the BSE were locked on the lower circuit. Titan was the worst-performing Sensex stock, declining 3 per cent. Hindustan Unilever fell 2.6 per cent, Bajaj Finserv fell 2.4 per cent, and NTPC fell 2.3 per cent. Bharti Airtel and SBI gained the most at 4 per cent and 2.7 per cent respectively.

Barring telecom, all the sectoral indices of BSE fell. Consumer Durables and Basic Material stocks fell the most, and their gauges declined 3.4 and 2.5 per cent, respectively.