The market corrected sharply after hitting fresh record high levels amid volatility but recovered more than half of the losses in late trade thanks to buying in metals and select banking & financials.
The BSE Sensex fell 263.72 points to 48,174.06 and the Nifty50 declined 53.20 points to 14,146.30. However, the broader markets rebounded with the Nifty Midcap 100 index rising half a percent.
Apart from normal profit-taking, here are five key factors that made traders cautious and worried about the market:
Global markets will keep a close watch on the two runoff elections in Georgia. The elections will decide which party (Republican or Democratic) can get the majority in the US Senate.
Kelly Loeffler and David Perdue from the Republican party are in the battle against Raphael Warnock and Jon Ossoff respectively from the Democratic party.
"If Republicans win at least one Senate seat, they will maintain a slim majority. If Democrats sweep the dual runoffs, the chamber would be split 50-50 and the tiebreaking vote would go to Vice President-elect Kamala Harris, giving President-elect Joe Biden’s party full sway over Congress. That raises the possibility of tax-reform proposals that many investors fear would hurt stock prices," Reuters said.
"NBC News now projects that Warnock has unseated Loeffler, while the race between Perdue and Ossoff remains too close to call," said CNBC.
Several states have sounded an alert to contain the H5N8 strain of bird flu and sent samples for testing when India started showing strong COVID-19 recovery rate. Meanwhile, Kerala began culling of chickens and ducks.
After the confirmation of positive reports of H5N8 virus (a variant of avian influenza) from the National Institute of High Security Animal Diseases (NIHSAD) of Indian Council of Agricultural Research, the 12 epicentres have been identified in Rajasthan, Madhya Pradesh, Himachal Pradesh and Kerala.
Services Sector PMI
The seasonally adjusted India Services Business Activity Index highlighted output growth for the third month in a row, at 52.3 in December, but declined from 53.7 in November, pointing to the slowest pace of expansion in three months, said IHS Markit in its note.
"PMI data showed that the Indian service sector continued to recover from the coronavirus disease 2019 (COVID-19) induced contractions seen through most of 2020, with output and new business rising for the third straight month in December. However, in both cases the rates of growth softened to the weakest over this period. Staff hiring came to a halt due to liquidity concerns, labour shortages and subdued demand, while business optimism faded," the research firm explained.
Price data showed a pick-up in input cost inflation, the strongest since February, but a renewed fall in selling prices as some firms sought to beat the competition and secure new work, it added.
Oil prices in the international markets hit 11-month high on Wednesday after the world's biggest oil exporter Saudi Arabia agreed for a voluntary output cut.
International benchmark Brent crude futures traded 0.56 percent to $53.90 a barrel, after hitting an intraday high of $54.09, the highest levels seen since February 26, 2020. WTI crude futures gained 0.08 percent at $49.97 a barrel, at the time of publishing this copy.
"Saudi Arabia agreed on Tuesday to make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March, after a meeting with the Organization of the Petroleum Exporting Countries (OPEC) and other major producers that form the group known as OPEC+," Reuters said.
The reductions agreed by Saudi Arabia were included in a deal to persuade other producers in the OPEC+ group to hold output steady, the agency added.
"While macroeconomic news continues to be positive, the rising crude is a dampener. Higher crude means higher cost-push inflation, which, in turn, might force the RBI to depart from the accommodative policy stance," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
The benchmark Nifty50 corrected but still held above crucial 14,000 mark given the traders using buy on dips strategy.
Hence, experts are not worried about this correction, but they advised caution and feel the index can rebound in coming days to march towards fresh record high levels.
"14,250 worked as a stiff resistance and we did see a sharp fall in the market. Although we did rebound from the lows, I would advise caution as sharp movements cannot be ruled out. Hence strict stops should be maintained and traders should initiate long positions only on dips or corrections," Manish Hathiramani, proprietary index trader and technical analyst at Deen Dayal Investments told Moneycontrol.