Indian equity markets witnessed a sharp fall on December 20, tracking the weak global cues. Nifty dropped as much as over 3 percent during the day, its biggest fall in 8 months. However, some buying came in the last hour of trade which pulled the index higher by 200 odd points and it managed to close with a fall of ~371 points (-2.1 percent) at 16,614 levels. Broader markets were impacted worse as sustained selling pressure pulled Nifty midcap and smallcap down ~4 percent each. On the sectoral front all the 14 sectoral indices ended the session in red with the Nifty Realty, PSU Bank and Media ending the session with a loss of (-4.90%), (-4.48%) and (-3.94%) respectively. Volatility index, India VIX was up 16% at 19 levels during the day.
The advance decline ratio at 0.13 was massively tilted in favor of the bears with 238 advances and 1837 declines. There were 27 stocks from BSE 500 index which hit their 52 week low during Monday’s trading session. This includes names like MRF Ltd, Bajaj Auto Ltd, Hero Motocorp Ltd., HDFC Asset Management Company Ltd, Gillette India Ltd, and Wockhardt Ltd.
“Markets reacted to the news of a sharp jump in the COVID cases globally which may result in a lockdown. Though the situation is under control domestically at present, any impact on the global economic recovery would dent our prospects too”, said Ajit Mishra, VP - Research, Religare Broking Ltd.
Besides this, the continuous pullout by FIIs triggered by hawkish world central banks’ policy, cautious view on Indian market due to high valuation compared to peers and drop in retail inflows is also weighing on the market sentiment.
Global markets were also deep in red as investors worried over surging omicron cases leading to tighter restrictions in certain European counties which could potentially damage the region’s economic recovery. The Netherlands went into a full lockdown on Sunday, other European countries might follow suit.
“Goldman Sachs trimmed its US Q1 CY2022 DP forecast to 2% from 3% earlier, after U.S. Senator Joe Manchin withdrew his support to U.S. President Joe Biden's $1.75 trillion domestic investment bill, thus dampening the overall sentiments”, said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.
Markets have retracted by ~10% from their peak. “The overall market breadth remains negative and would require strong positive triggers for changing the current negative trend” added Khemka.
Selling pressure is intact at higher levels and any recovery or bounce is being used by traders to go short on the market, he said.” Thus, we maintain our cautious view in the market for next couple of days”.
“We feel that we are reaching the last phase of this consolidation in terms of price correction. Some pockets have become fair however the overall market is still trading at the upper-hand which will continue to affect the performance of broad market, in the short-term”, said Vinod Nair, Head of Research at Geojit Financial Services.
He advises long-term investors to chip into high quality stocks with a focus on defensives and India focused businesses.
Mishra of Religare Broking echoed similar sentiments and said, “We reiterate our cautious view on markets and suggest focusing more on risk management”. Investors, on the other hand, can start accumulating quality stocks selectively from a long term investment perspective, he added.
From the technical perspective, “Nifty formed a bearish candle on daily scale and has been forming lower lows from the last six sessions. Now till it remains below 16,800 zones, bounce could be sold and weakness could be seen towards 16,400 then 16,200 zones whereas major hurdle exists at 17,000 zones”, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
Sachin Gupta, AVP Research, Choice Broking added that, “The index has also moved below Middle Bollinger Band formation & 100-Days SMA, which suggest a bearish trend. A momentum indicator RSI Stochastic & MACD has traded with negative crossover. At present, the index has support at 16450 levels while resistance comes at 16800 levels”.
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