As markets fall for 3rd straight day, Nifty may test 21,000, Bank Nifty likely to be rangebound

Market meltdown extends to second consecutive day

Benchmark indices - S&P BSE Sensex and NSE Nifty 50 extended fall to the third straight day led by over 3 percent fall in HDFC Bank shares after its December quarter results kept investors unhappy. The subdued global set-up and 5-week high US treasury yields further worsened investors mood on Thursday. Analysts expect further weakness in benchmark indices in the near-term, while Bank Nifty index is expected to remain rangebound.

At 10:15 am, the BSE Sensex was down 0.6 percent to 71,032 levels, while NSE Nifty 50 declined 0.8 percent to 21,398.

“We expect Nifty to fall up to 21,000 levels in the coming days as India Inc announces its Q3 report card,” told Nirav Harish Chheda, Assitant Vice President-Equity Derivatives & Technical Research- Retail at Nirmal Bang to Moneycontrol.

Sameet Chavan, Technical Analyst at Angel One, too, advised traders to eye 21,100-21,000 zone for Nifty amid the currently unfolding down move.

ALSO READ: Why this analyst sees more correction in HDFC Bank, predicts buying in IT stocks

Where is Bank Nifty headed?

Banking stocks, in particular, which have around 35 percent weightage in the Nifty also traded weak within the first hour of trade. Bank Nifty index was down by 1 percent to 45,430 levels on January 18 morning deals weighed by HDFC Bank and Federal Bank. Notably, HDFC Bank carries around 14 percent weightage in the benchmark Nifty.

"Though the tone is negative and seeing a pressure across the sectors, we expect Bank Nifty to remain rangebound in the next couple of days as banking majors announce Q3 results. If Bank Nifty fails to hold 45,700 throughout the day, a fall upto 44,500 can be possible," said Ajit Mishra, Senior Vice-President at Religare Broking.

Apart from banking stocks, a broad-based selloff was seen across sectors. Nifty Media, Metal, and Realty indices were the worst hit as they declined up to 3 percent on January 18 morning deals.

Mid-smallcap pockets in 'bubble zone'

Meanwhile, broader markets underperformed benchmarks, with Nifty Midcap 100 and Nifty Smallcap 100 indices falling 2 percent each on January 18 opening deals. Analysts expect correction to deepen in both these segments as they have entered a bubble-zone.

"Mid and smallcaps in general have become more expensive after the recent runup. Many weak (low growth or quality) mid and smallcap stocks are in bubble zone and caution is advised," warned Vinay Paharia, CIO, PGIM India Mutual Fund.

On the other hand, Chokkalingam G, Founder at Equinomics Research said that smallcap index can particularly see intense correction in the coming days as they trade at 33 times (x) price-to-earnings (PE) ratio as against 26x PE multiple of benchmark Sensex.

While volatility is likely to remain on the rise amid ongoing corporate earnings season, subdued global set-up is not supporting domestic markets as well.

ALSO READ: Lessons from HDFC Bank’s crash 

Global markets subduded; early rate cut hopes diminishing

Overnight, the US markets notched a third losing day after strong December retail sales report suggested fewer rate cuts from the Federal Reserve than many are expecting. Currently, markets are expecting roughly 56 percent chance of a quarter percentage point cut in March, as per CME FedWatch tool.

As a result, the US 1o-year treasury yields hovered near 4.1 percent, the highest level seen since December 13. The two-year treasury note also rose around 12 basis points to 4.3 percent.

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