Indian market reversed gains and fell into the red in the second half of the trading session weighed by weak domestic cues.
The S&P BSE Sensex hit a high of 40,010, but reversed gains, touching the low of 38,395.89, while Nifty50 slipped to touch 11,325.85 on the downside in intraday trade.
The S&P BSE Sensex closed 839 points, or 2.13 percent, down at 38,628.29 while the Nifty50 fell 260 points or 2.23 percent to 11,387.50 levels.
The meeting between the Securities and Exchange Board of India (SEBI) with brokers, leading corporates, exchanges, and depositories on Monday has been concluded and the Sebi is ready to move into the new margin pledge and re-pledge system from September 1, 2020.
The change in margin system and securities pledge-repledging could undoubtedly bring disruptions in volumes of daily trading as there is insufficient preparation and validation by the participants in this system - viz Exchanges, Depositories, Depository Participants, Clearing corp, Brokers and clients, suggest experts.
"We could witness further polarization of stocks in the markets for some time with the top 200-300 stocks seeing the most depth and liquidity. The securities currently pledged with the brokers need to undergo the new process, which so far is not smooth going by the runs conducted so far," Deepak Jasani, Head of Retail Research, HDFC Securities told Moneycontrol.
"Hence, large traders are unsure as to whether they will have limits to trade on Sept 01 which may lead to volume drop in both Cash and F&O segments that may last a few days/weeks," he said.
We have collated a list of factors that could be weighing on markets:
Indian markets reversed gains after tensions between India and China border near Ladakh escalated. Chinese troops violated consensus and carried out provocative military movements on the night of August 29-30, aimed at changing the status quo at the Line of Actual Control (LAC), the Indian Army said on August 31.
The army further said that Indian soldiers pre-empted People’s Liberation Army (PLA)’s activity on the southern bank of Pangong Tso and undertook measures to strengthen positions and thwart Chinese intentions.History suggests that equity markets do not like uncertainty.
After rallying for three consecutive months since May both Sensex and Nifty50 climbed crucial resistance levels. The S&P BSE Sensex reclaimed 40,000 in intraday trade while the Nifty50 was also trading around 11800 before it gave up gains and turned negative.
Most experts were anticipating some consolidation in Nifty in the first week of September.
GDP Data expected to contract:
The Street would watch out for the GDP data for the June quarter which is likely to turn negative. Economists are of the view that the Indian economy will contract in April-June this year.
ICRA, a credit rating agency and consulting firm, has projected that India's GDP would contract 25 percent in the April-June quarter.
According to ICRA, that economic performance was primarily weighed down by the considerable drag imposed by three key production sub-sectors, namely manufacturing, construction, and trade, hotels, transport, communication and services related to broadcasting.
The State Bank of India's (SBI) research report Ecowrap has projected that India's GDP may contract by 16.5 percent during the quarter due to lower-than-expected de-growth in corporate GVA (gross value added)
Broader markets under pressure:
Both the S&P BSE Small-cap index, and the Mid-cap index fell more than 3 percent each on Monday. The Small-cap index recorded double-digit gains in 3 out of the last 5 months; hence, some bit of profit-taking was on the cards.
Also, broader markets wiped out most of the gains made in the year 2020 as on Friday thanks to strong global liquidity. Hence, there could be some profit-taking in the near term but that will still be a good buy on dips opportunity.
“All active investors must remember the valuation of midcap index P/E close to 106 in December 2017 due to very high inflow of money in mutual funds post demonetization period, & since then Investors hardly made any money in midcaps,” Amit Jain, Co-founder & CEO, Ashika Wealth Advisors told Moneycontrol.
“So in our view, in this liquidity-driven rally, the risk-reward ratio may not be very favorable, so all Investors should be very cautious with their entry point in markets,” he said.
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