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Indian equity benchmarks witnessed wild swings on Wednesday, with both the S&P BSE Sensex and the National Stock Exchange Nifty hitting new highs intraday but ending the session with the biggest losses in many months amid profit booking.
Concern about the rise in Covid cases and elevated valuations in midcap and smallcap stocks also weighed on sentiment.
During the day, the Sensex rose to 71,913 before giving up gains in the latter half of the session and ending at 70,506, a decline of 931 points, or 1.3 per cent. Investors lost Rs 8.91 trillion on Wednesday . Wednesday’s close is the worst fall for the Sensex since October 26, 2023. The Nifty ended the session at 21,150, a decline of 303 points, or 1.4 per cent — the worst fall since March 13, 2023. Profit booking after a good run was cited as the primary reason for the market rout. The benchmark indices made gains in the past seven weeks on the back of strong macroeconomic (macro) numbers and the prospect of rate cuts by major central banks in the Western world.
The other reason could be the results of the recently concluded state elections, which raised bets for policy and regime continuity.
However, investors have been taking money after the run-up.
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“The long build-up was based on the assumption that there would be continued buying by foreign portfolio investors (FPIs). But they have been booking profits this week. A bit of correction is par for the course. One cannot say the market trajectory has changed dramatically,” said U R Bhat, co-founder of Alphaniti Fintech.
FPIs were net sellers to the tune of Rs 1,322 crore, according to provisional data from exchanges.
Concern about valuations, especially in midcaps and smallcaps, after gains this year and the recent spurt in Covid cases, have also been weighing on investor minds.
The Nifty Midcap 100 is trading at a 12-month forward price-to-earnings (P/E) of 26.6 against a five-year average of 23.2, and the Nifty Smallcap 100 is trading at 12-month forward P/E of 20.5 against a five-year average of 16.8.
India recorded 614 Covid cases in the past 24 hours — the highest since May 2021. Cases of the 20 JN.1 sub-variant have also been detected in three states.
“There is hardly any margin of safety left in some pockets of midcaps and smallcaps after a significant run-up; thus, taking out some froth is healthy for the market.
Nevertheless, India’s structural story is getting stronger with a stable government, a healthy outlook for corporate earnings, and an improving macro picture. Hence, any material dip could again provide an investment opportunity in quality stocks,” said Sanjeev Hota, head of research of Sharekhan by BNP Paribas.
The macro data from the US and the UK will offer further cues to the market.
The market breadth was weak, with 3,234 stocks declining and 612 advancing. Except one, all Sensex stocks fell. Reliance Industries declined 1.2 per cent and contributed the most to Sensex’s decline.
Stocks of non-banking financial companies declined after the Reserve Bank of India on Tuesday tightened norms for lenders related to making investments in units of alternative investment funds.
