Markets take a plunge; stormy weather ahead

HDFC Bank and RIL, which command the highest weights in benchmark indices and clocked disappointing earnings in the December quarter, contributed to almost half (48.63%) of the Sensex’s 1,053.10, or 1.47%, fall to 70,370.55. The Nifty 50 tanked 333 points, or 1.54%, to 21,238.80. Heavy retail profit-booking in the broader markets dragged down the Nifty Midcap 150 and the Nifty Smallcap 250 indices the most in a month to 17,204.35, down 2.9%, and 14,217.35, down 2.7%, respectively. The Bank Nifty fell 2.26% to 45,015.05, after disappointing third-quarter results from top lenders.

The crash came a day after India’s market capitalization of $4.33 trillion crossed Hong Kong’s $4.29 trillion, making it the fourth-largest stock market worldwide. The latest value of the Hong Kong market on Tuesday was not available at press time.

“Profit-booking has caught up with companies whose results have disappointed the Street or where corporate governance issues have cropped up,” said Nilesh Shah, managing director, Kotak Mahindra AMC. “As most of these companies are large-cap banking, FMCG or IT names, the selling is more fund-based, which is why the fall is sharper,” Shah said.

In derivatives, the active Nifty futures contract saw open positions (outstanding buy-sell contracts) fall by 4.59% as the index fell, indicating bulls liquidated their long positions before the contracts expire on 25 January. However, bears were active on the active Bank Nifty futures contract (expiring 25 January) with open positions rising 15.79% as the index tanked, suggesting bearish sentiment.

Foreign portfolio investors (FPIs) net sold a provisional ₹3,115.39 crore worth of shares while domestic institutions purchased ₹214.40 crore on Tuesday. So far this month, FPIs have sold shares worth ₹16,601 crore.

Another reason attributed to the FPI selling was the expectation that the market regulator will tighten ultimate beneficial ownership (UBO) norms as planned, effective 1 February, against hopes of a postponement. This means specified funds would have to disclose the identity of those exercising ownership and control of the same to prevent violation of the regulator’s minimum public shareholding norms.

“Sebi standing firm on implementation of the UBO norms is said to be one of the factors behind the FPI selling, apart from the tepid results, though it’s par for the course for markets to correct by 10-12% in any year. In hindsight, it provides a good opportunity to buy,” said Gaurav Dua, senior vice president, head-capital market strategy, Sharekhan by BNP Paribas.

Apart from the fund-based selling, retail and HNI profit booking in small-caps and select mid-caps continued, with unconfirmed reports of margin calls being triggered by brokers offering leverage to such clients. Zee Entertainment was the biggest loser on the Nifty Midcap 150, tanking 32.61%.

The market is likely to stay volatile, indicated by fear gauge India Vix rising 7.6% to 14.85. A rising Vix indicates heightened uncertainty. The Bank Nifty, which traded slightly above its 200-day simple moving average of 44,666.31, could test that level soon. A close below the average indicates bearishness. “The Bank Nifty has filled the gap on the chart that was created on 4 December,” said Siddarth Bhamre, EVP and research head, Religare Broking.

“However, the quantum of short positions created in its futures and key components indicate that buying on dips can be avoided. The next important support for this index is around 43,500.”

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Published: 23 Jan 2024, 11:39 PM IST