The benchmark equity indices gave up early gains and turned volatile by the afternoon session on Monday, with the Sensex slipping over 200 points from the day’s high and the Nifty falling below the 24,650 mark. The markets extended their downtrend to the seventh day, as bank stocks were dragged by persistent foreign fund outflows ahead of the RBI's policy outcome on Wednesday.
Sensex declined 61.52 points or 0.08 percent to settle at 80,364.94. During the day, it hit a high of 80,851.38 and a low of 80,248.84. Falling for the seventh consecutive session, the Nifty slipped 19.80 points or 0.08 percent to 24,634.90. Nifty has dropped more than 3 percent in the seven straight sessions.
Axis Bank, Maruti Suzuki India, Adani Enterprises, Kotak Mahindra Bank and Larsen & Toubro were among the major laggards, declining up to 2 percent intraday.
Key factors behind market reversal:
1) Continued FII selling: Persistent selling by Foreign Institutional Investors (FIIs) weighed on sentiment. FIIs offloaded equities worth Rs 5,687.58 crore on Friday. Market experts said sustained outflows exert pressure on domestic equities and the rupee.
"FPIs pulled out USD 21 billion from India during the last one year, the largest outflow among emerging markets during this period," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. "This has also contributed to a 3.5 percent depreciation in the rupee against the dollar. Elevated valuations in India and muted earnings growth remain the main triggers."
2) RBI policy uncertainty: Investors remained cautious ahead of the Reserve Bank’s monetary policy decision, due on October 1. While the central bank is widely expected to hold its key repo rate at 5.50 percent, some economists have not ruled out a surprise cut in view of global trade tensions and soft inflation. A Reuters poll showed nearly three-fourths of economists see a pause, but major banks including Citi, Barclays, Capital Economics and SBI have flagged the possibility of a rate reduction.
3) Lack of clarity on US-India trade talks: Concerns over trade discussions between India and the United States also dampened mood. "India and the US are still some distance away from a trade deal, with tariff rollback remaining a key sticking point," Jayant Dasgupta, former ambassador to the World Trade Organization, told CNBC-TV18. Analysts said any progress on this front would be crucial for a sustained market recovery.
"The market has drifted lower for six straight sessions, pulling the Nifty below the 24,800 support zone. While the market is technically weak, it is now oversold and could see a short-term bounce. However, for any rally to sustain, positive triggers such as progress on the US trade deal are essential," Vijayakumar added.
4) Weakness in IT stocks: The IT index, which had seen early buying, turned negative amid last week's announcement of changes to the H-1B visa process by the US administration. As Indian IT firms rely heavily on such visas for deploying skilled staff overseas, any restrictive measures typically weigh on sectoral stocks.
5) Uptick in India VIX: The volatility index, India VIX, rose 1.3 percent to 11.58 after an initial dip. A rise in VIX indicates higher expected market volatility, often leading investors to turn cautious.
Technical view
Anand James, Chief Market Strategist at Geojit Financial Services, said, "The Nifty’s reversal from its highest level since mid-July has extended to seven consecutive sessions, resembling the start of a September–March bear phase. With slow stochastics approaching oversold territory, we expect sideways movement or a pullback early this week. Upside targets may be 24,720-24,830 or 24,970, before a possible decline to 24,500."
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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