The benchmarks-- the Nifty 50 and the Sensex, ended the session in the red for the sixth straight session, albeit off the day's lows. However, it was the broader market that took a beating in today's session, with the smallcap and midcap indices shedding around 3 percent and 2 percent, respectively.
At close, the Sensex was down 638.45 points or 0.78 percent at 81,050, and the Nifty was down 218.80 points or 0.87 percent at 24,795.80. The Sensex had hit an intraday low of 80726.06 while the Nifty 50 had slipped to 24694.35 through the session. About 597 shares rose, 3,289 fell, while 117 were unchanged, meaning around five stocks fell for each one that rose.
It's also worth noting that the selloff in the market came despite positive cues from global markets as investors remained on the edge amid concerns over outflows from India in favour of China. Foreign institutional investors have sold off Indian equity worth a whopping Rs 30,719.57 crore in October thus far, moving away to the Chinese market which has become more attractive amid cheap valuations, especially after the country's array of stimulus measures to revive its battered property sector.
Coupled with this massive outflow, the growing tensions in the Middle East, which has also tipped off a spike in crude prices have also dented sentiment in the domestic market. Likewise, bogged down by concerns of lofty valuations in uncertain times, investors are fleeing out of mid and small-cap stocks, causing the sharp selloff seen today.
Ruchit Jain, Research Analyst at 5Paisa also noted that during market uptrends, midcap and smallcap indices generally outperform the Nifty 50 and Sensex. However, the reverse is true during downturns, as these indices, with their high-beta stocks, tend to experience sharper declines.
Meanwhile, the Q2 earnings season is also knocking on the door with information technology majors slated to release their quarterly numbers later this week. Motilal Oswal Financial Services expects Q2 to deliver the slowest Nifty earnings growth in 17 quarters. These concerns of earnings moderation in the face of expensive valuations have also weighed on investor sentiment. Alongside that, the Reserve Bank of India's three-day monetary policy meeting also began today, further pushing investors into a risk-off mode.
On the sectoral front, all sectors barring information technology, ended with cuts,. Banks, energy, metals, PSU banks and media being the worst hit as they dived 2-4 percent in trade today. Information technology however bucked the trend as Nifty IT ended 0.6 percent higher driven by names like Infosys and TCS.
However, despite the persisting concerns, experts do not see the trend of outflows towards China sustaining for much longer. "I don’t think foreign investors will actively "Sell India to buy China" beyond some marginal trades. Yes, a small percentage of funds, constrained by assets, might be selling India to buy China. But largely, when China does well, flows will go into emerging market funds, Asia-Japan funds, and Asia-Pacific funds, which is a positive for the entire region, including India," Samir Arora, Founder and CEO of Helios Capital said in an interaction with Moneycontrol.
On the weekly technical charts, Sameet Chavan, Head Research, Technical and Derivative, Angel One, saw the formation of a bearish candle, suggesting that more pain is in the way for the Nifty 50. Chavan sees more downside for the benchmark, with the next key support around the September swing low of 24,750 followed by 24,500.
On the upside, he sees Friday's high near 25,500, which coincides with the 20 EMA and the channel breakdown level, acting as a stiff resistance, with 25,300 being the immediate resistance. "Traders should exercise caution with short positions, as some in-between bounces cannot be ruled out due to oversold conditions in momentum indicators on intraday charts," he added.
Chavan also predicted volatility to remain high in upcoming sessions. The fear-gauge India VIX surged 6 percent to 15.
Among Nifty 50, Trent, M&M and Bharti Airtel were top gainers with 1-2 percent gains, while NTPC, Bharat Electronics and Adani Ports were the worst hit due to their 3-4 percent correction.
Also Read | Smallcap, midcap indices crack 3% amid FII outflows, rising crude prices
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