Market selloff extends on banking blues, China weakness, US Fed bet

Nifty trades below 21800

Indian benchmark indices BSE Sensex and NSE Nifty extended decline to second consecutive day as global mood turned sour after the US Federal Reserve indicated that the central bank may lower rates at a slower rate than anticipated. The bearish sentiment was further fuelled by HDFC Bank's mixed December quarter (Q3FY24) results that disappointed investors.

At 9:20 am, BSE Sensex crashed over 800 points to about 72,300 points, while NSE Nifty 50 tumbled over 250 points to below 21,800.

However, market observers see this correction as healthy, suggesting investors to buy on every declining opportunity.

"Even though the economy is doing well and corporate earnings are good, all these positives are in the price and the valuations are elevated warranting a correction," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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Going ahead, Vaishali Parekh, Vice-President - Technical Research at Prabhudas Lilladher recommended traders to watch out 21,700 levels for Nifty as any breach below this zone could weaken the bias to some extent. "The support for the day is seen at 21,900 while resistance is seen at 22,200," she added.

Globally, the bearish sentiment prevailed after the US Fed tanked investors hopes of a sooner easy monetary policy scenario. Fed Governor Christopher Waller suggested that while the central bank will likely cut rates this year, it may take its time during the process as US is still at a 'striking distance' of the Fed's 2 percent inflation goal.

This Fed commentary prompted US 10-year treasury yield gain nearly 12 basis points (bps) to 4 percent. US dollar index, too, hovered at one-month high of 103.3 levels against a basket of six currencies. It also saw dollar's biggest one-day percentage gain since January 2.

According to CME's FedWatch tool, market expectations of rate cut in March eased to 62.2 percent chance versus 79 percent chance in the earlier session.

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Back home, mixed HDFC Bank Q3 results suppressed market sentiment. HDFC shares command over 14 percent weightage on Nifty 50 index and they tumbled over 6 percent on January 17 morning deals. While the bank's net profit and net interest income (NII) parameters were largely in-line with market estimates, flat margins on a sequential basis dismayed investors as deployment of excess liquidity failed to make a move.

Meanwhile, Nifty Smallcap 100 index eked out marginal gains, while Nifty Midcap 100 index traded in negative territory within the first hour of trade. Fear gauge India VIX, thereby, jumped over 1 percent to nearly 14.

Sectorally, Bank Nifty was the worst hit as it declined over 2 percent while Media and IT indices bucked trend with up to 0.6 percent gains.

Technically, Deven Mehata, Research Analyst at Choice Broking suggested a strong support for Bank Nifty at 47,500 levels. "If Bank Nifty closes below the mentioned support levels today on its weekly expiry it can move further lower towards 46,900-47,000 levels," he added.

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