Market fall continues in second week; 63 small-cap stocks slip 10-22%

Market witnessed selling in the second straight week ended February 18 amid volatility on the back of Russia-Ukraine crisis led to rising crude oil prices and US Fed minutes indicating possibility of rate hikes sooner than expected.

BSE Sensex fell 319.95 points (0.55 percent) to end at 57,832.97, while the Nifty50 shed 98.45 points (0.56 percent) to close at 17,276.3 levels, last week.

Among sectors, Nifty PSU Bank index plunged 4.6 percent, Metal index shed 4 percent and Realty index fell 2.7 percent.

Broader indices underperformed main indices with BSE Midcap index fell 2 percent and Smallcap indices plunged 3.2 percent.

Some 63 small-cap stocks lost 10-22 percent. These include Axtel Industries, Syncom Formulations, Manappuram Finance, NRB Bearings, Mangalam Organics, Metropolis Healthcare, GRM Overseas, DB Realty, NLC India, Jindal Worldwide, Centum Electronics, Kuantum Papers, Jindal Poly Films, 63 Moons Technologies, Repco Home Finance and Bharat Road Network.

On the other hand, Sree Rayalaseema Hi Strength, TCPL Packaging, Excel Industries, Solara Active Pharma Sciences, Everest Industries, Eveready Industries India, Mirza International, Sandur Manganese, Vishnu Chemicals, RHI Magnesita India, Technocraft Industries (India) and Shree Pushkar Chemicals and Fertilisers rose 11-29 percent.

"Markets started the week with a sharp correction, however rebounded back and ended the week with little change. Nifty 50 and Sensex 30 were down marginally. However, the BSE Midcap and BSE Small cap index saw some correction and was down between 1.5-3 percent, said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

Most of the sectors gave negative returns during the week with the BSE metal index declining close to 4 percent.

Earnings have been largely stable and India’s medium story staying remains intact. However, headwinds have strengthened due to a rise in bond yields, an increase in oil prices, and geopolitical risks. The US 10-year yield crossed the 2 percent mark this week and oil prices remained on the higher side.

"With the Q3FY22 results season now behind us, the domestic markets will continue to focus on geopolitical events, central bank measures, bond yields, oil prices, inflation numbers, and global/domestic macro data," Chouhan said.

The BSE Midcap index lost 2 percent with REC, Balkrishna Industries, Gland Pharma, Rajesh Exports, Godrej Industries, Muthoot Finance, Honeywell Automation, Sun TV Network, Union Bank of India, 3M India and Natco Pharma, each fell over 5 percent.

The BSE 500 index declined over 1 percent dragged by Manappuram Finance, Metropolis Healthcare, NLC India, Mahindra Logistics, KRBL, Dilip Buildcon, Indiabulls Real Estate, Astral Limited, JK Lakshmi Cement, Hindustan Copper and Firstsource Solutions.

"Domestic equities were moving in tandem with developments in the Russia-Ukrain crisis and global inflationary pressure. Domestic indices started the week plunging deep in the red as increased tension between Russia and Ukraine sent oil prices rising and forced investors to dump risky assets. However, a ray of hope that the tension is de-escalating prompted a sharp recovery in domestic equities," said Vinod Nair, Head of Research at Geojit Financial Services.

India’s CPI inflation for January rose to 6.01 percent, breaching the RBI’s tolerance level due to high food inflation and low base effect and this might prove to be a cause for concern for the domestic market in the near term, according to him.

In yet another blow to global inflationary pressure, the UK’s inflation jumped to 5.5 percent in January, recording a 30-year high, putting pressure on the Bank of England for a further rate hike sooner than anticipated.

"The indices ended the week keeping volatility high as the US market witnessed a sell-off following the release of the FOMC meeting minutes where the US Fed officials outlined plans for an interest rate hikes and said that the unwind of the bond portfolio could be aggressive," Nair said.

"As current global cues are forcing global equities to remain unstable, the domestic market is also expected to continue its volatile trend in the coming days. In such a volatile market a prudent approach is to have a balanced portfolio with a mix of equity, debt, gold, and cash," he advised.

Where is Nifty50 headed?

Yesha Shah, Head of Equity Research, Samco Securities

With the earnings season behind us and given the overall tone, the market is expected to move in tandem with its global peers in the coming week. Market players will keep a careful eye on developments in the Russia-Ukraine situation, and given the inflation overhang, they will also pay attention to movements in energy prices.

Back home, due to the monthly expiry, Dalal Street's line of action would be volatility. Furthermore, with given the ongoing Assembly polls, political uncertainty will reign and hence, investors are recommended to remain on the sidelines until some level of stability is restored.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial

Equity markets have seen a rise in volatility in the last couple of days due to varying news flows coming in from the Ukraine border. The Nifty has been trading in a broader range of 16,800-17,400 and needs a decisive breakout on either side for clear direction.

Volatility is expected to remain high next week as well, given the crucial meeting between the US and Russia. Inflationary concerns, continuous FIIs selling, and monthly FNO expiry could add to the volatility next week.

Ajit Mishra, VP - Research, Religare Broking:

The last three days of the movement in the index indicate caution among the participants due to uncertainty around the Russia-Ukraine tension. We feel it will end soon and any favourable development over the weekend may result in a strong start next week.

On the flip side, in case of a negative surprise, the reaction could be equally severe. We recommend sticking to hedged positions and suggest preferring index majors over others.

On the index front, the Nifty needs a decisive close above 17,500 to regain strength while the 16,800-17,000 zone would remain the key support.

Shibani Kurian, Senior EVP & Head- Equity Research, Kotak Mahindra Asset Management Company:

Going forward, investors would be watchful of the outcome of the US Federal Reserve policy in March and Russia-Ukraine conflict. Crude is on an uptrend and the trajectory of crude prices along with inflation in India and globally and the pace of earnings growth in India would be the key factors to watch out for.

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