The benchmark indices on Tuesday came off their record highs as investors took profits after judging recent gains as excessive.
The Sensex and the Nifty50 had ended at new all-time highs in the previous session after rallying close to 4 per cent, after exit polls predicted that the Narendra Modi government was set to retain power. The two indices extended gains on Tuesday but failed to sustain the momentum as banking and automobile stocks came under heavy selling pressure.
The Sensex ended 383 points, or 0.97 per cent, lower at 38,970, while the Nifty50 index declined 119 points, or 1.01 per cent, to close at 11,709. In the previous three sessions, both the indices had jumped nearly 6 per cent each on the back of election euphoria. Most investors have been rooting for the Modi government to continue to ensure continuity in the reform process.
Experts said Monday’s rally had priced in a victory for the ruling Bharatiya Janata Party (BJP), prompting some investors to take money off the table before the final results, which will be out on Thursday.
Sunil Koul, Asia Pacific strategist at Goldman Sachs, said valuations for the Indian markets were high compared to historic levels and Monday’s up move was pricing in more positivity. “We see the equity valuations as ‘fair’ relative to our macro models, but (there is) potential for ‘valuation overshoot’ in the near term if exit polls come true,” he said.
Goldman Sachs has set one-year Nifty target of 12,500. But in the medium-term, returns would be “largely driven by mid-teen earnings growth (aided by banks)”, he added.
According to market experts, if the final results are in line with the exit polls, there was room for further rally, but if the BJP-led National Democratic Alliance (NDA) failed to reach the majority mark, stocks could slide from current levels.
“If the exit polls are right, a BJP single party majority may result in an up-move of 5-10 per cent of the Nifty in the near term.
However, a non-NDA government may lead to a 10-15 per cent correction in the Nifty, if we go by market reactions in 2004 and 2009 to big surprises,” said Gautam Chhaochharia, head of Research at UBS India.
Just like a day earlier, overseas investors were strong buyers, while domestic institutional investors (DIIs) were net sellers on Tuesday, the data provided by the stock exchanges showed.
Foreign portfolio investors (FPIs) bought shares worth Rs 1,185 crore, while DIIs sold shares worth Rs 1,090 crore. On Monday FPIs bought shares worth Rs 1,734 crore after pulling out Rs 8,500 crore from domestic stocks in the previous eight sessions.
Barring three, all Sensex constituents ended with losses. Banking and financial shares were the biggest drag on the market — most of them declined between 1 per cent and 3 per cent, after making stellar gains a day earlier. Seventeen of the 19 sectoral indices of the BSE declined, led by the auto index, which fell 2.60 per cent.