Nifty pulls back after breaching 25K barrier; Sensex ends 625 points lower

Benchmark indices declined on Tuesday, reversing all the gains made in the previous session, as investors assessed the impact of the global trade climate on the world economy. Profit-taking in heavyweight financial and information technology stocks weighed on market performance.

 

The Nifty 50 ended 0.7 per cent, or 175 points, lower at 24,826, while the Sensex fell 0.76 per cent, or 625 points, to close at 81,551.63.

 

The 50-stock index had risen about 1.6 per cent in the previous two sessions, driven by foreign inflows, easing tensions between the US and the European Union, and the Reserve Bank of India’s (RBI’s) support for the government.

 

“We are likely seeing some profit-taking and liquidity divergence towards the primary market, as well as a couple of large promoter stake sales,” said Sunny Agrawal, head of fundamental equity research at SBICAP Securities.

 

Foreign portfolio investors (FPIs) were net buyers to the tune of ₹340 crore, while domestic institutions were net buyers worth ₹10,015 crore.

 

Although May has been the best month in terms of FPI flows, flows to other emerging markets (EMs) have been stronger. Some market experts have raised questions about the sustainability of these flows in the future, as Indian equity valuations have returned to elevated levels.

 

“There are better opportunities to invest within Asia, where valuations are cheap and fundamentals are sound. If the fundamentals turn, there is no reason why FPI money should not return,” said Sunil Thirumalai, head of EM and India equity strategy at UBS.

 

UBS recently upgraded its stance on the Indian markets to ‘neutral’ and has set a year-end Nifty target of 26,000.

 

 

“We upgraded India because it has a very defensive and domestic profile, which is important in this market. However, valuations are still pretty expensive, which makes it hard for us to make it overweight now,” Thirumalai said.

 

This is the third time that the Nifty has retreated after hitting 25,000 this month. To drive the Nifty past the 25,000 resistance level, investors will look to India’s January–March quarter gross domestic product data, due this week, and the RBI’s rate decision next week, according to analysts.

 

“The benchmark index once again failed to decisively breach the 25,000 resistance level, reflecting the absence of positive triggers. Largecap stocks underperformed, weighed down by subdued foreign institutional investor participation and lacklustre earnings from blue-chip companies. Conversely, mid and smallcap segments remained relatively resilient, supported by better-than-estimated fourth-quarter earnings and moderation in premium valuation,” said Vinod Nair, head of research at Geojit Financial Services.

 

The market breadth was mixed, with 2,053 stocks declining and 1,897 advancing. Four-fifths of Sensex stocks declined. HDFC Bank, which fell 0.7 per cent, and ICICI Bank, which dropped 0.9 per cent, were the biggest drags on the Sensex.

 

“We are currently witnessing a tug-of-war between bulls and bears amid mixed global cues. However, favourable domestic factors, such as a good monsoon and strong macroeconomic data, are helping to maintain a positive undertone. We continue to maintain a positive outlook on the market. However, sustained strength in the banking and financial sectors is crucial for the Nifty to overcome the 25,200 hurdle and regain upward momentum,” said Ajit Mishra, senior vice-president of research at Religare Broking.