The Sensex fell 677.77 points, or 1.1%, to close at 59,306.93 and the Nifty fell 185.6 points, or 1.04%, to end at 17,671.65. Friday’s decline comes on the back of a near 2% decline in indices on Thursday due to RBI’s move to drain cash from the banking system. Foreign portfolio investors (FPIs) offloaded shares worth ₹5,142.6 crore while domestic institutional investors (DIIs)bought shares worth ₹4,342.5 crore, provisional data showed. FPIs have sold Indian shares worth ₹18,000 crore in October. “Markets had run up so there was a need for a pullback. There are darker clouds on the horizon in terms of inflationary pressure and rate hike environment developing in emerging markets,” said Nilesh Shah, MD at Kotak Mahindra Asset Management Co.
“This is a correction time and not a crash time except for a few stocks in the red zone in the market. Red zone is low floating but prohibitively high valuation stocks and penny stocks which have been pulled up without any fundamentals by circular buying,” said Shah.
Tech Mahindra, NTPC, Kotak Mahindra Bank, , L&T, and Axis Bank fell 2-3%.
Both indices have recorded a second consecutive weekly loss, down more than 2%. The fall in the last three days has eroded the overall market cap of BSE-listed companies by Rs 6 lakh crore.
“Weak global clues, steep valuations, downgrades by some of the global brokerages and selling by foreign institutional investors are weighing on the Indian market sentiment,” said Sunil Singhania, founder and CEO, Abakkus Asset Manager. “Profits are also booked to invest in the large pipeline of IPOs which are planning to raise nearly Rs 35,000 crore in the next two weeks.”
Indices have more than doubled from their March 2020 lows without having seen a major decline.
These sentiments have been driven more recently by receding concerns of a third Covid wave and the Indian economy picking up alongside the easy monetary policies of global central banks.
However, that’s about to change as tapering of bond purchases by the US central bank begins from November.
With concern around this liquidity withdrawal, investors are unwilling to pay a steep price to own Indian equities.
Morgan Stanley said Thursday that Indian markets may take a breather for the next three to six months as expensive valuations are likely to limit returns.
UBS and Nomura have also recently downgraded Indian equities. In the short term, the selling is likely to get absorbed near 17,600, said Gaurav Ratnaparkhi, head of technical research at Sharekhan by BNP Paribas.
“On the way down, the index has broken certain key short term supports,” he said. “This shows that the short-term range for the index has shifted lower… The current selling pressure is likely to get absorbed near 17,600.”
