Indices decline for third straight day amid concerns over economic recovery

Investors turn jittery over high valuations, inflation

India’s benchmark indices declined for the third consecutive day on Thursday, led by losses in index heavyweights Reliance, Infosys, and TCS, amid investors’ concerns over high valuations and the impact of inflation on corporate profits and economic recovery. A rally in banking shares helped offset some losses.

After dropping as much as 774 points, the Sensex ended the session 336 points, or 0.5 per cent, lower at 60,923, while the Nifty fell 89 points to close at 18,178. In the last three sessions, the Sensex has declined 842 points, or 1.4 per cent, while the Nifty has dropped 299 points, or 1.6 per cent. The Nifty Midcap 100 and the Nifty Smallcap 100, on the other hand, have plunged close to 6 per cent in three days.

Domestic institutional investors (DIIs) have sold shares worth about Rs 9,000 crore in the last nine trading sessions. On Thursday, DIIs turned net buyers to the tune of Rs 428 crore, but foreign portfolio investors (FPIs) sold shares worth Rs 2,819 crore, taking their nine-day selling tally to Rs 4,482 crore.

Market observers said retail investors continued to remain strong buyers in the market in a bid to 'buy the dip'. However, they were not able to offset the massive selling by DIIs and FPIs over the past few days. If the markets continue to correct, retail investors, too, could turn sellers, adding more downward pressure to the market, experts said.

Prior to the latest correction, the Sensex and the Nifty had gained for seven straight trading sessions, logging record highs of 61,766 and 18,477, respectively.

Institutional investors are prompted to take some money off the table given the sharp up-move seen last week, analysts said. Profit-booking was more prominent in certain pockets that had seen frenzied buying.

On Wednesday, global brokerage UBS in a note said valuations of Indian equities had turned extremely expensive and the market had become unattractive.

“The markets are likely to consolidate further given weak global cues, ongoing earnings season, and elevated valuations. The earnings declared so far have been mixed with cost inflationary pressure being visible on margins. Since the valuations are now at absurdly higher levels, many stocks are priced to perfection, thus leaving very little room for any disappointment,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

Moreover, concerns persist about the impact of the rising commodity prices on the profitability of firms. Brent crude was trading at $84.37 a barrel on Thursday, hovering near its three-year high. Also, rising bond yields — both domestically as well as in the US — have made the risk-reward unfavourable, said analysts.

Globally, inflation, supply chain challenges, and concerns about Evergrande kept investors on tenterhooks. The Volvo Group warned investors that global semiconductor shortage and supply chain issues would hinder its production. At the same time, Nestle and Procter and Gamble told investors that they could raise the product prices to tackle higher costs.

There was some volatility in the Asian markets after Evergrande disclosed that its plan to sell its properties services division was unsuccessful. The stock had resumed trading after a two-week suspension on Thursday.

The market breadth improved on Thursday, with 1,694 stocks declining and 1,589 advancing on the NSE. More than two-thirds of the Sensex stocks declined. Asian Paints was the worst-performing Sensex stock, declining 5.2 per cent. Reliance Industries fell 2.8 per cent and dragged the Sensex lower by 224 points. Reliance will declare its results on Friday post market hours. Banking stocks provided some support to the market. Kotak Mahindra Bank gained the most at 6.5 per cent. HDFC and ICICI Bank gained over 1 per cent each.