The benchmark S&P BSE Sensex’s 11-day winning streak ended on Monday amid caution in the global market ahead of the US Federal Reserve’s (Fed’s) interest rate decision. The Sensex closed at 67,597, with a decline of 242 points, or 0.36 per cent, while the 50-share National Stock Exchange Nifty finished at 20,133, down 59 points, or 0.3 per cent.
In an earlier session, both indices had closed at their record highs. It was also the longest winning streak for the Sensex since 2007. Over the previous 11 sessions, the Sensex gained 4.6 per cent amidst strong domestic institutional buying and optimism on the back of better domestic macro data and corporate earnings numbers.
Index heavyweights HDFC Bank, Reliance Industries, and Infosys dragged the markets lower on Monday. Analysts said investors chose to take some profits off the table following strong gains made in the last two weeks.
“The 11-session winning streak has finally ended as profit-taking came into play in banking, realty, information technology, and telecommunication stocks. Global headwinds and higher domestic index valuations after the recent upsurge are making investors nervous, which may lead to more profit-taking in the near term,” said Shrikant Chouhan, head of research-retail, Kotak Securities.
There was some nervousness ahead of key monetary policy decisions this week. The Fed will announce its monetary policy on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan a day later.
A rally in crude oil prices has complicated the central bankers’ task of bringing inflation to their targeted levels. The Brent crude prices have risen 13 per cent in the last three weeks and are currently trading close to $95 per barrel.
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Moreover, a sharp rally in equities has made investors pessimistic about the outlook.
A note by Morgan Stanley said there’s a growing debate among its clients about whether a recession has been avoided altogether or has just been delayed until next year.
Analysts said a section of markets is betting that a resilient US economy will prompt the Fed for one more interest-rate hike this year and hold the peak rates next year longer than previously expected.
Jimeet Modi, chief executive officer of SAMCO Securities, said markets would be choppy going ahead. “People are going light as the Fed’s monetary policy meeting is scheduled this week. Some excess positions have been squared off. Investors do not want to take too much risk. The correction is healthy. The one-sided move is in nobody’s interest.”
When asked whether valuations have become elevated, Modi said largecap stocks are still trading at reasonable prices.
“But there is some froth in certain small and midcap stocks’ pockets. There is some excess, but the overarching sentiment in the market is that of cautiousness, which is comforting.”
The market breadth was weak, with 2,143 stocks declining and 1,642 advancing. Half of Sensex stocks fell. Despite the weakness in the market, the Nifty PSU Bank Index rose 3.4 per cent, which analysts termed a case of money chasing momentum.
“This is a time to book profits in public sector banks. Most are in the midcap space; a correction is expected in midcaps. The valuations are elevated, and bank credit growth has slowed,” said Chokkalingam G, founder of Equinomics Research & Advisory.