The euphoria on Monday turned to panic overnight as the NDA coalition fell way short of the emphatic performance that the exit polls had forecast. The Nifty and Sensex plunged around 6 percent each, as panicky bulls tried to exit their positions. But the real carnage was in the market fancied PSU stocks, some of which fell as much as 25 percent intra-day.
The Nifty ended the day at 21,884.50, down 1,379 points after touching a low of 21,281 during the day. The Sensex tumbled 4,389 points to finish at 72,079.05, after having hit 70,234 intra-day. Mid and small caps fared even worse with the respective indices falling 6-7 percent.
The stock market fall of today erased $386 billion in market capitalisation.
The big worry for the market is the policy decisions could slow down now that the BJP looks unlikely to get a majority of its own. This also caused the rupee to fall by 45 paise and close at 83.59 against the US dollar.
Every single sectoral index with the exception of FMCG closed in the red, with banks, realty, and PSU stocks falling the most. Adani group stocks too were among the biggest losers of the day.
Also Read | Indian rupee plunges 45 paise to close at 83.59 against US dollar
On the BSE, losers outnumbered gainers almost 7:1.
The PSU Banks index and the CPSE Index on the NSE fell 15 percent, the Realty index fell 9 percent and the Nifty Bank fell 7 percent.
“This was not an outcome market valuations were set up for,” broking firm UBS said in a note as it retained its underweight rating on India in its emerging market basket. The Nifty was quoting at close to 23 times one year forward earnings at yesterday’s closing price.
Market experts have been repeatedly warning about excessive valuations for a while now. But it was widely believed that strong domestic liquidity and a strong win for the NDA coalition in the general elections would keep the party going for some more time.
Among individual stocks, SAIL, BEL, PFC, REC, CONCOR, GAIL, NALCO, Hindustan Aeronautics and BHEL fell between 18-25 percent. Trading in these stocks had to be temporarily halted after they fell 15 percent.
Also Read | Defence stocks bleed upto 15% as profit booking heats up; Bharat Electronics, HAL, Mazagon Dock worst hit
“PSU stocks will see the highest degree of uncertainty from here for a few months at least because too much froth had got built into the valuations, Shyam Sekhar, founder of ithought Financial Consulting, told Moneycontrol.
Brokers say that lot of speculative positions in fundamentally unsound stocks could get liquidated in the days ahead and there would be a shift to quality stocks. They also warned investors against rushing in to buy just because this approach has worked in the past.
“I don't think at the policy level anything changes, “ Rajeev Thakkar, CIO, PPFAS Mutual Fund told Moneycontrol.
“Maybe on taxation side, there may be a little more stricter taxation regime, and they will probably want to spend more in poverty alleviation or in terms of creating rural demand,” he said, adding that decision making could be slower.
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