Markets fall after posting biggest single-day gain in four years

Concerns over FPIs shifting to China, US weigh on sentiment

Domestic equity benchmarks suffered their steepest single-day drop in over a month on Tuesday, dragged down by profit booking and concerns that foreign portfolio investors (FPIs) may redirect funds to China and US following trade tariff truce.  

 

The sharp decline came a day after the indices posted their biggest single-day gains in four years. The Sensex closed at 81,148, down 1,282 points, or 1.5 per cent, while the Nifty settled at 24,578, shedding 346 points, or 1.4 per cent. This marked the worst performance for both the indices since April 7. 

 

While largecaps slumped, the broader market showed resilience. The Nifty Midcap 100 inched up 0.2 per cent, and the Nifty Smallcap 100 rose 0.8 per cent. Overall, the BSE-listed firms saw a ₹1.5 trillion drop in market capitalisation, settling at ₹431 trillion. It had risen over ₹16 trillion in the preceding session. 

 

 

On Monday, the US and China agreed to slash reciprocal trade tariffs for 90 days. The US will reduce duties on Chinese imports from 145 per cent to 30 per cent, while China will cut its tariffs on US goods from 125 per cent to 10 per cent.   

 

Analysts fear the easing of trade tensions could divert FPI flows away from India. In April, India had emerged as a safe haven amid global trade uncertainties, attracting foreign investments.  

 

"It appears that (the) Indian market has shed its fears regarding the India-Pakistan conflict, but a China-US trade deal may reduce the relative attractiveness of India," analysts led by Vikash Kumar Jain of CLSA said on Tuesday.

 

"Rising fears of global trade disruptions since March made India the place to hide for foreign investors. However the receding fears may drive a shift in FIIs towards China," CLSA analysts added. 

 

“The relief-driven surge, fuelled by easing global and domestic risks, including reduced trade war tensions and Indo-Pak geopolitical stress, appears to be taking a breather. This consolidation is primarily affecting largecap stocks, while mid and smallcap segments continue to gain traction,” said Vinod Nair, head of research at Geojit Financial Services.

 

Going forward, the remainder of earnings season,  FPI flows, stable monsoons, and potential trade deals with the US will provide further momentum to the market rally.

 

"A remarkable feature of Q4 earnings that we've been seeing so far isn't exceptional earnings. In fact, we are seeing a marginal slowing at a broader level. What we've successfully avoided is the worst-case earnings projections that resulted from the continuous downgrades since September last year. Each sector has seen its mix of cuts and resilience,” said Bernstein in a note.

 

The note added that the markets are positioned well. However, volatility will persist, and a linear rise in Nifty is unlikely.

 

"Macro will stay resilient with improved liquidity, lower rates, better government capex spends, rural demand and support from tax cuts helping reduce earnings risks," the note said.

 

The market breadth was strong with 2,559 stocks advancing and 1,402 declining. HDFC Bank, which declined 1.76 per cent, was the biggest drag on the Sensex, followed by Infosys, which fell 3.5 per cent. 

FPIs on Tuesday were net sellers worth ₹477 crore, and domestic institutions bought shares worth ₹4,274 crore. 

Defence stocks spurt

 

Defying a sluggish market, the Nifty India Defence index jumped 4.12 per cent on Tuesday, driven by optimism about the sector's growth due to increasing focus on self-reliant military capabilities. On Monday, Prime Minister Narendra Modi said, “The global credibility of our Made in India weapons is evident, highlighting the need for indigenous defence equipment in 21st century warfare.” All 18 index components gained between 2.3 per cent to 11.5 per cent, led by state-owned Bharat Dynamics and Garden Reach Shipbuilders & Engineers. Analysts attribute the rally to higher domestic defence budgets, growing exports, and a push for indigenous design. The Nifty Defence index has soared nearly 50 per cent since its March lows.