Sensex, Nifty extend losses as financial stocks drag; broader indices break 6-day rally

Sensex and Nifty retreat during May 20 session as sectoral pressures mount

Indian benchmark indices, Sensex and Nifty, continued their downward trend during the afternoon session on May 20, dragged down by losses in auto, banking, and pharma stocks. The Nifty Midcap 100 and Smallcap 100 indices also gave in to selling pressure, snapping their six-day winning streak.

By around noon, the Sensex had fallen by 317.89 points, or 0.39 percent, to reach 81,741.53, while the Nifty declined by 87.95 points, or 0.35 percent, to stand at 24,857.50. At that time, 1,558 shares were advancing, 1,798 shares were declining, and 121 shares remained unchanged.

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Among sectors, the Nifty Metal and IT indices helped limit the downside in the broader indices. Metal stocks saw a rally as investor sentiment improved following China’s announcement of an interest rate cut aimed at supporting its economy amid ongoing trade tensions with the United States.

China’s central bank, the People’s Bank of China, reduced its benchmark lending rates for the first time in seven months. This move sparked hopes of a potential rise in metal demand, which is expected to benefit Indian metal producers and exporters.

Meanwhile, the Nifty IT index resumed its upward movement, although it came off its intra-day highs. This rebound came a day after the index was hit by worries of a slowing U.S. economy following Moody’s downgrade of the country's credit outlook.

Looking ahead, Harish Krishnan, co-CIO and head of equity at Aditya Birla Sun Life AMC, believes the market may enter a phase of consolidation in the near term, especially after the strong rally that began in mid-April.

"After a strong move, a consolidation is likely but this does not mean any negatives for India. The pace of earnings downgrades has slowed down and, with a good budget delivered in February and the RBI’s policy stance now turning accommodative, India’s macroeconomic picture appears stable from a long-term perspective," he said.

However, Krishnan also pointed out that investor return expectations will need to be adjusted going forward, as the outsized gains seen in the post-Covid period are unlikely to repeat.

"Post-Covid, we saw earnings and markets doubling every three years and investors got used to that. But now, we think earnings growth will go back to a more normal pace of doubling every six to seven years. Investors need to understand this shift. From here on, they should prepare for a marathon, not a 100-metre sprint," he added.

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