Markets halt 2-day winning streak with Sensex, Nifty down 1%: What fuelled bears today?

Sensex ended at 60,657.45 down by 636.75 points or 1.04%. While Nifty 50 closed at 18,042.95 lower by 189.60 points or 1.04%. India’s volatility index climbed nearly 6% on Wednesday. Midcaps and small cap’s too shed nearly a percent.

India’s services PMI expanded to 58.5 in December 2022 — better than expected. In the previous month, the services sector stood at 56.4.

Vinod Nair, Head of Research at Geojit Financial Services said, “The domestic market affected by the worries in the global market, traded with deep cuts. Fears over aggressive rate hikes resurfaced ahead of the release of Fed meeting minutes, a meeting that left the door open for additional hikes. Apart from global cues, the domestic market will pay close attention to corporate earnings. India’s services PMI expanded to 58.5 in December owing to stronger growth in new business.”

While Ajit Mishra, VP – of Technical Research, at Religare Broking said, “the decline was widespread wherein realty, metal, and energy were among the top losers. The broader indices too traded in tandem and ended with a cut of over a percent each.”

Mishra added, “This decline has engulfed the gains of the last four sessions in Nifty and selling pressure in the banking index, which was acting as a saviour so far, has further deteriorated the mood. And, we feel the pressure may increase below 18000 levels in Nifty. Keeping in mind the scenario, it is prudent to limit leveraged positions and wait for clarity.”

Meanwhile, the rupee closed at 82.8025 against the US currency after reaching to as high as 82.75 per dollar in the trading session. On the previous day, the local unit closed at 82.88 per dollar.

Here’s what drove bears today in Indian markets:

1. Selloffs in large-cap stocks:

Stocks like Tata Steel, Power Grid, and Tata Motors were top laggards with a downside of over 2% each on Sensex. Also, steep selling in heavyweights like Reliance Industries, Infosys, and HDFC Bank further dragged the performance.

Other major stocks such as Wipro, SBI, ITC, HDFC, IndusInd Bank, Bajaj Finserv, and Nestle also witnessed between 1-2% downside further adding to woes.

TCS and Maruti Suzuki shares managed to stay in the green, however, the upside was marginal.

2. Metal and banking stocks top underperformers:

Although the overall markets witnessed broad-based selling pressure across sectoral indices, however, metal and banking stocks were the worst hit.

BSE Metal index was the top bear by nosediving 604.12 points or 2.83%. Major stocks like JSW Steel, Hindalco, SAIL, Vedanta, Coal India, NALCO, Tata Steel, and JSPL were down by over 2% to 4%. Metal stocks took a beating due to uncertainty over demand recovery in China.

On the other hand, BSE Bankex dipped by 481.43 points or 0.97%. Bank Nifty slumped by 466.45 points or 1.07%. Bank of Baroda, HDFC Bank, AU Small Finance Bank, IndusInd Bank, and SBI stocks were the worst hit.

Deepak Jasani, Head of Retail Research, HDFC Securities said, “Metals and BFSI stocks came under severe selling pressure reversing the gains of previous few sessions.”

3. Upcoming third-quarter earnings season:

Market participants also entered into a wait-and-watch mode in major companies ahead of their December 2022 quarter results. TCS will kick start the Q3FY23 earnings season next week by announcing its financial results for the quarter on January 9th. Peers like Infosys and HCL Tech are also lined up to announce their Q3 on January 12th followed by Wipro on January 13. The largest banker in terms of market share and largest private banker, HDFC Bank will also be announcing its Q3 results on January 14. Others will follow suit going ahead.

4. Global markets:

HDFC Securities expert said, the broad market came under severe pressure as the A/D ratio fell to 0.42:1. European stocks ticked higher while Asian markets were mixed on Wednesday, as investors looked ahead to the release of fresh US jobs and manufacturing data, hoping for hints on the future path of interest rates apart from minutes from the U.S. Federal Reserve’s last meeting. News that China is considering further support for property developers and is mulling an end to a ban on Australian coal also helped sentiments.

5. FOMC minutes:

FOMC minutes will be announced later on Wednesday for the December 2022 policy where the Fed increased the rate by a much smaller size by 50 bps — halting the hike of three consecutive 75 bps in previous policies. However, Federal Reserve Chair Jerome Powell indicated that the central bank has more work to do in raising interest rates and vanquishing inflation.

The minutes are expected to provide much a clearer view of the Fed’s stance in monetary policy going forward, additional rate hikes scenario, and shed some light on inflation moving forward in 2023.

6. Oil prices burn:

On Wednesday, both Brent crude futures dipped by over 2.4% to trade over $80.15 per barrel at the time of writing. Meanwhile, US WTI slipped over 2.3% to trade around $75.15 per barrel.

Earlier today, Ravindra V. Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities said, “the major factor that triggered selling was the looming recession and slowing factory activity in China. The recent data showing slowing factory activity in the world’s biggest oil-importing nation has added fuel to fire. Moreover, IMF’s warning of a potential global recession in 2023 has cast doubts on world oil demand. Additionally, a sharp recovery in US Dollar has supported the bear case. As the global growth worries is haunting oil markets important economic data releases in the week from world’s largest economy, the US might drive oil prices in the near term.”

7. Bears of Wall Street:

After a long New Year’s holiday, Wall Street recorded bears on the first day of 2023 ahead of FOMC minutes. US stocks had ended the overall year 2022 with sharpest annual losses since 2008 as Fed carried its fastest pace of rate hikes since the 1980s to tackle multi-decadal high inflation. Also, recession fears continue to dampen sentiments broadly. Overall, the US markets closed lower on Tuesday.

8. IMF’s recession warning:

In an interview with CBS, the International Monetary Fund chief Kristalina Georgieva said that one-third of the world economy will be in recession this year. According to her, the world faces a tougher 2023 as the three big economies – the United States, the European Union, and China – are all slowing down simultaneously.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.