 "Raging bulls take a break")
The BSE Sensex closed at 26,816.56, down 0.9 per cent, the most since August 8. The National Stock Exchange (NSE) Nifty closed at 8,042, a fall of 0.78 per cent, with more 75 per cent of its components ending with losses.
Data released after market hours on Friday showed the Index of Industrial Production declined to 0.5 per cent in July from 3.4 per cent a month earlier. China, the world’s second-largest economy, reported slowest industrial production growth since the 2008 global financial crisis, spooking global equity markets.
Experts said the markets were likely to remain under pressure, as investors awaited clear signals from the US Fed, which would meet on September 16 and 17 to decide on interest rate increases, expected only next year. A decline in Wholesale Price Index-based inflation, however, provided some comfort to the market, though it wasn’t enough to reverse the losses, seen across most global markets.
“The market looks stretched by about five per cent; certain stocks look more stretched. We expect the market to consolidate at current levels for the next few months. Though we remain bullish, the pace of the rally will definitely slow,” said Nitin Jain, head (capital markets), Edelweiss.
According to provisional NSE data, foreign investors sold shares worth Rs 75 crore on Monday. So far this year, foreign institutional investment into Indian markets has crossed the $14-billion mark, helping the markets rise about 27 per cent during this period.
Despite the fall in benchmark indices, the broader market remained positive, with more than one stock advancing for every falling one. The BSE mid-cap and small-cap indices bucked ended 0.18 per cent and 0.71 per cent higher, respectively. Metal stocks, led by Hindalco and Tata Steel, fell the most. Information technology majors Tata Consultancy Services and Wipro declined about 1.5 per cent each.
“In these times, when market sentiment is strong and small- and mid-caps are making new highs, our advice is to remain discrete and look to stay invested in companies with good management track records,” said Dipen Shah, head (private client group research), Kotak Securities.
Analysts believe now, the pace of the rally might slow, as Indian market valuations are more than their long-term averages. The benchmark Nifty is trading at 17.5 times the 2014-15 estimated earnings and 14.8 times the 2015-16 estimated earnings. “The last 10-year average for Nifty’s one-year forward price/earnings is at 14.9, implying the Nifty, at 16.3, is trading at a slight premium,” says R Sreesankar, head (institutional equities), Prabhudas Lilladher.
On Monday, NSE’s India Vix rose seven per cent to 13.25, indicating possible volatility in coming sessions. “The market has started preparing for an interest rate increase in the US, expected next year. If there is any negative surprise, there could be correction,” said Jain.