Markets down over 1%, awaiting cues from budget, US Fed

The caution in the markets also prevails ahead of the Union Budget and the US Federal reserve meeting next week. The Nifty ended the day down 1.25% at 17,891.95, slipping below the psychological 18,000 mark. The Sensex also ended 1.34% lower on Wednesday.

Banks and financial services stocks pulled down the markets as oil & gas, energy, infrastructure, realty index also saw significant corrections. All the sector indexes closed lower.

The domestic equities saw a volatility amid monthly derivatives expiry and subdued global markets, said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd. He said sentiments also dampened after short seller Hindenburg raised concerns over the Adani Group’s debt position, leading to intense selling in them.

Vinod Nair, head of research at Geojit Financial Services attributed the significant sell-off in Indian equities to apprehensiveness in the market ahead of the upcoming budget and Fed meeting next week. Sentiments were dampened by persistent FII selling, where funds are being shifted to other emerging markets as a result of attractive valuations, said Nair. A weak economic growth outlook that stoked recession fears pulled down global markets, he added.

Experts feel that a major trigger is necessary for the markets to break this range either on the upside or the downside. The two major events ahead in the next week on 1 February, i.e. the budget and the Fed decision on interest rate can influence the markets and help break the indices out of the narrow range, said analysts. While a good budget and positive commentary from the US Fed can help markets break out of the upper band. However, any negative budget proposal like raising the rate of long-term capital gains tax or a worse-than- expected hawkish Fed can break the lower end of the range, feel experts

“Foreign flows have been relatively weak, as relative valuation attraction in China has drawn incremental flows, but this phenomenon is expected to be overcome by strong growth numbers that Indian corporates continue to report,” said S Hariharan, head, institutional equity sales, Emkay Global Financial Services.

The foreign portfolio investors (FPI), that have been net sellers of equities worth ₹13,206.36 crore of equities in January till 24th, net sold ₹2,393.94 crore worth of equities on Wednesday.

The month of January has seen very tepid market volumes and daily cash market volumes of ₹47,000 crore, compared to ₹56,000 crore in October-December quarter as per Hariharan. This is despite strong institutional participation, which is up to an average of 27% of daily market volumes compared to 22% in Oct-Dec quarter. Hariharan points to lacklustre sentiment from domestic retail participants, and this is also reflected in futures segment. January rollover spreads for futures positions have been cheaper than the last 3 months, reflecting relative reluctance from long positions to roll positions.

Meanwhile, the earnings season is in full swing and markets are likely to take cues from the results and also will be closely following the management commentaries.

So far, the 3QFY23 results suggest increased revenue growth with some pressure on the margin front, said Mitul Shah – Head of Research at Reliance Securities. The US December macroeconomic data were dismal, pointing to a slowdown for the world’s largest economy, said Shah. Meanwhile, the RBI has mentioned that while some economies adapted and coped with the difficult situation in 2022, the biggest risk in 2023 will be the US monetary policy and the trajectory of the US dollar. In the run-up to the Union Budget 2023, sector and stock-specific movements are expected to hit the markets in the coming weeks, said Shah.

Adani Group stocks saw steep corrections in the range of 1.54-8.06% on the BSE with Adani transmission stock seeing maximum correction. Even ACC and Ambuja Cements also saw steep 7-8% corrections on the BSE.