Indian market plunged for the fifth consecutive day on January 28, wiping out by about Rs 10 lakh crore of investor wealth on the BSE in a matter of days. The selloff comes days ahead of the Budget 2021, which will be tabled on February 1.
The S&P BSE Sensex broke below 47,000 levels (intraday on January 28), a fall of about 4,000 points from the high of 50,184 recorded on January 21. The Nifty50 has also fallen about 1,000 points from the high of 14753.
Sectorally, the selloff has been seen in banks, realty, IT, finance, as well as FMCG sectors while some buying was seen in auto, as well as oil & gas space.
The broader market is outperforming for the second day in a row that suggests that the most of the selling is restricted to largecap stocks.
We have collated a list of factors that could we weighing on Indian markets:
GameStop induced volatility
The GameStop rally is very unique in the regulated securities market, where a group of Reddit market enthusiasts have rallied the stock systematically, much to the chagrin of the professional portfolio managers, including Melvin Capital, Point72, and Citadel.
The volume activity is on the rise which caught everyone’s attention. GameStop shares rallied more than 100 percent in 2020.
“With new liquidity poised to enter the system, one can expect the markets to continue being de-coupled from fundamental value for some more time. Whether it’s Tesla, Bitcoin, or GameStop, the liquidity pumped into the system will find a portion channelled into speculative trading behaviour,” Swastik Nigam, Founder & CEO, Winvesta told Moneycontrol.
“The sell-offs are not systemic in my view, and should not instantly be construed as being a secular market correction in the near term. Given the wide variety of factors, one can expect choppy markets for a while longer,” he said.
US SEC ‘actively monitoring’ volatility in equity markets
The US Securities and Exchange Commission said it was “aware of and actively monitoring” ongoing market volatility in options and equities markets, after a dramatic run-up in the prices of shares of companies like GameStop, Reuters said in a report.
Much of the selloff seen is largely due to weak global cues and selloff seen on the Wall Street, which fuelled risk-off sentiment pushing the dollar higher. The weakness was seen across the globe.
Asian markets also traded in the red. Japan’s Nikkei fell 1.3 percent, its sharpest drop since October, and Chinese blue chips lost 2.4 percent as liquidity tightened before the Lunar New Year holidays. South Korea eased 1.7 percent led by losses in Samsung after it reported earnings, data from Reuters showed.
“Markets, globally, have turned weak following the steady decline in the mother market US. The heightened speculative activity in certain segments in US markets have become an area of concern,” Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
Profit Taking ahead of Budget 2021
The Sensex, which almost doubled from March lows of 2020, is taking a breather. Valuations are a concern and uncertainty around the budget will keep markets on the edge, especially after Finance Minster promised a landmark budget.
Experts say it is a healthy correction and investors could look at buying quality stock . “The budget uncertainty will keep the bulls in restraint. In brief, a confuse set of market signals. The Nifty has corrected around 5 percent from the peak. This is a healthy correction,” Vijayakumar added.
Naveen Kulkarni, Chief Investment Officer, Axis Securities told Moneycontrol that multiple factors have contributed to market fall. The markets were overheated because of stretched valuations, even as the economic challenges continued in the western world.
“From here, corporate earnings will continue to be key, but valuations also have to be back in a reasonable zone. So, a combination of price correction and time correction will provide better entry points for the market,” he said.
Kulkarni added that investors should hold healthy cash positions and should manage to buy quality stocks at attractive valuations.
Foreign investors, which have been net buyers in Indian markets for more than Rs 1 lakh crore, have turned net sellers for the past three trading sessions. FIIs have pulled out more than Rs 3,000 crore in the cash segment of the Indian equity markets, dampening the sentiment.
Vijayakumar of Geojit highlighted that consecutive selling by FIIs has turned the market mood bearish.
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