The markets came off sharply from their seven-month high on Wednesday, on account of profit booking ahead of the Futures & Options (F&O) expiry tomorrow. Investors turned cautious on concerns the current rally, which has seen the key indices rise almost 20 per cent since the start of the year, may have ran ahead of fundamentals and earnings growth. Crude oil prices climbing to a nine-month high further dented sentiment.
Declining the most in almost a month, the Bombay Stock Exchange (BSE) benchmark, Sensex, fell 283.4 points, or 1.5 per cent to 18,145.25. Meanwhile, the National Stock Exchange (NSE) Nifty dropped 101.8 points, or 2.3 per cent to 5,505.4. Banking and metal stocks were the major contributors to the losses.
The sharp correction in the Indian market came in the last few hours of trade, following weak opening in the European market after ratings agency Fitch downgraded Greece to pre-default ‘C’ level, down from ‘CCC’. The cut comes after the euro zone leaders decided on a second bailout package of euro 130 billion to Greece yesterday.
“After such a sharp one-way rally, some correction was expected. The market was clearly overheated,” said Nitin Jain, head, capital markets (individual clients), Edelweiss Financial Services. “If crude prices are going to stay at this level, inflation will remain sticky. The hypothesis for the rally that interest rates will decline will get challenged if inflation stays high.”
“For the markets to sustain and move up from the current levels, we need to see further reforms and a sustained moderation in inflation. Additional liquidity in Europe, if any, may boost the markets,” said Dipen Shah, head (fundamental research), Kotak Securities.
Brent crude for April settlement was trading at $121.58 a barrel on London’s ICE Futures Exchange on Wednesday.
Despite the fall in the market, foreign institutional investors (FIIs) continued with their buying spree on Wednesday, investing Rs 829.6 crore, according to provisional data from BSE. FII investments in the Indian market have crossed the $5-billion mark in 2012. Meanwhile, domestic institutional investors offloaded stocks worth Rs 1,332.9 crore.
According to experts, now that the third quarter earnings season has ended, the next big triggers for the market will be the Budget and the Reserve Bank of India’s credit policy, both due in mid-March.
The market breadth was negative on the BSE, with almost three stocks declining for every advancing one. All indices, expect for information technology, closed with losses. Rate-sensitives such as realty, metal, power and banking declined the most. The BSE Realty index fell 6.8 per cent, while the metal, power and banking indices fell about four per cent each. Among the major losers on the Sensex, State Bank of India fell the most, at eight per cent, and ICICI Bank declined 3.4 per cent on concerns over exposure to Kingfisher Airlines. Among other losers, realty major DLF and metal company Sterlite Industries fell close to seven per cent each.
Derivative experts believe the market is likely to witness high volatility on account of the expiry of February F&O contracts tomorrow. Most Asian markets closed with gains on Wednesday. Japan’s Nikkei 225 gained 0.96 per cent, Hong Kong’s Hang Seng added 0.3 per cent and China’s Shanghai Composite gained 0.9 per cent.
