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The expiry of the derivatives contracts, a shift to a faster T+1 (trade plus one day) settlement cycle, and Hindenburg’s short-sell call shaving $12 billion off Adani stocks also weighed on investor sentiment.
The benchmark BSE S&P Sensex ended the session at 60,205, with a decline of 773 points, or 1.3 per cent.
The National Stock Exchange Nifty50 closed at 17,892, a fall of 226 points, or 1.3 per cent, over its previous close.
Foreign portfolio investors (FPIs) intensified the selling pressure, yanking out Rs 2,394 crore on Wednesday. In January, FPIs sold shares worth Rs 16,766 crore, according to data from the National Securities Depository.
India’s valuation premium, elevated interest rates, and China ending its Covid quarantine are leading to a reallocation of funds by FPIs.
“The fall is a reaction to a multitude of reasons with the Budget and FPIs withdrawing money at the top of the pile. With the Budget just days away, we have witnessed the markets turning volatile 80 per cent of the time in the past decade. The FPI sell-off is also on expected lines since we are the only market that proved lucrative to them last year. With our valuations becoming expensive, it’s only natural that they pull out money from here and look at emerging markets (EMs) with cheaper valuations,” said Sumit Chanda, chief executive officer and founder, Jarvis Invest.
Both the Budget and the Fed monetary policy announcements come on February 1. Markets are usually tumultuous around the Budget. There has been some nervousness as the Fed has sent out feelers that interest rates will remain elevated until inflation in the US slows down the central bank’s target of 2 per cent.
There was weakness in global markets ahead of the Fed announcement and after technology giant Microsoft Corporation and a clutch of other major firms forecast slower earnings. A weak earnings outlook and fears of recession have kept investors anxious.
Moreover, shares of Adani Group companies declined after US-based Hindenburg Research said it holds short positions in the group’s stocks.
“Indian equities witnessed significant sell-off as the market appeared apprehensive ahead of the Budget and the Fed meeting next week. The sentiment was dampened by persistent FPI selling, where funds are being shifted to other EMs as a result of attractive valuations. Furthermore, a weak economic growth outlook that stoked recession fears pulled down global markets,” said Vinod Nair, head-research, Geojit Financial Services.
The statement by Moody’s Investors Service India’s gross domestic product (GDP) growth is seen declining to 5.6 per cent in FY24, which also added to the volatility. There was some volatility as Wednesday was the weekly and monthly derivatives expiry day.
The futures and options contracts expire on Thursday — also a market holiday.
The volatility index — VIX — rose 7.3 per cent on Wednesday, trading at 14.6.
The US fourth-quarter GDP and initial jobless claims will be keenly tracked this week.
Four-fifths of Sensex’s constituents ended the session with losses. HDFC Bank declined 2.8 per cent, being the biggest contributor to the Sensex’s losses.
The broader markets underperformed, with the Nifty Midcap and the Nifty Smallcap indices declining close to 1.5 per cent.
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First Published: Wed, January 25 2023. 20:25 IST