Stock market today: Nifty 50, Sensex fall about half a per cent each; experts point out these 4 reasons
Stock market today: Frontline indices the Nifty 50 and the Sensex fell about half a per cent each on Thursday, January 25. Market benchmarks resumed their downward march a day after clocking strong gains of one per cent on profit booking in most stocks.
Nifty 50 opened at 21,454.60 against the previous close of 21,453.95 and dipped as much as 207 points to hit the intraday low of 21,247.05. The index, however, pared losses and ended 101 points, or 0.47 per cent, lower at 21,352.60.
The Sensex opened at 71,022.10 against the previous close of 71,060.31 and fell 741 points to hit the intraday low of 70,319.04. The index finally ended 360 points, or 0.51 per cent, lower at 70,319.04.
Mid and smallcaps outperformed the benchmarks. While the BSE Midcap index ended with a loss of 0.36 per cent, the Smallcap index bucked the trend and ended with a gain of 0.54 per cent.
According to experts, here are the main reasons behind the market’s fall today:
1. No valuation comfort
Experts point out that the market is unable to hold gains as there is no valuation comfort after sharp gains.
“There is no valuation comfort in the market due to the recent sharp gains. The mid and smallcap spaces are at a high valuation which is a risk,” said G. Chokkalingam, Founder and Head of Research at Equinomics Research.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services pointed out that a significant anomaly in the market is the high valuation in some pockets and the fair and even attractive valuation in some other pockets.
“For instance, some PSU stocks are flying high on hopes based on order flows. It will take a long time for these order flows like in shipbuilding, for instance, to translate into profits. And there is no guarantee that it will happen. On the other hand pockets like banking are fairly valued and the performance and prospects are good,” said Vijayakumar.
2. Sustained selling by FPIs
Foreign portfolio investors (FPIs) have been on a selling spree in the Indian market. According to NSDL, FPIs have sold Indian equities worth ₹19,308 in January so far.
FPIs are selling Indian stocks as US benchmark bond yields are rising while optimism around rate cuts fades. The market is now pricing in rate cuts from May to June this year. There are apprehensions that the rate cuts may not be substantial which could disappoint the market.
“Investors now expect the Fed to deliver its first interest rate cut in May, instead of March. Fed Funds futures on Tuesday implied a 41 per cent probability for at least one rate cut at the March Fed meeting, down from 88 per cent a month ago,” reported Reuters.
Vijayakumar said the rising bond yields in the US is a matter of concern.
“This rally in global stock markets was triggered by the Fed pivot which saw the 10-year bond yield falling from 5 per cent to around 3.8 per cent. Now the 10-year is back at 4.18 per cent which indicates that the Fed rate cut will come only in the second half of 2024,” said Vijayakumar.
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3. Caution ahead of central bank meetings
Investors appear cautious ahead of key central bank meetings. Investors now await the European Central Bank (ECB) meeting on Thursday. ECB is likely to maintain current interest rates. However, according to Reuters, investors anticipate potential cuts of up to 130 basis points the year.
The policy meet of the US Fed is expected on January 30-31. Investors will keenly observe the Fed Chair’s commentary on the recent strength in the economy and look for cues on rate cuts.
4. Strong profit booking in banking, IT stocks
Banking and IT heavyweight stocks, including HDFC Bank, Axis Bank Tech Mahindra, TCS and HCL Tech traded with losses weighing on the market benchmark.
While the Nifty IT index fell almost 2 per cent, the Nifty Bank index dropped over a per cent. Analysts underscored that weak Q3 earnings of IT and banking majors have triggered a selloff in these stocks.
Apart from the above three factors, persisting geopolitical tensions and some caution ahead of the Interim Budget are also among the factors that are weighing on domestic market sentiment.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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