Sensex, Nifty end in the red, 5 factors that weigh on market sentiment

After logging gains of more than a percent in the previous session, market benchmarks the Sensex and the Nifty resumed downward march on March 22 as the investors took money off the table amid concerns over rising bond yields and a surge in coronavirus cases.

The Sensex fell 577 points, while the Nifty slipped to 14,597.85 in intraday trade. However, the market recovered in the final hour of trade and ended with minor losses.

At close, the Sensex was 87 points, or 0.17 percent, down at 49,771.29, while the Nifty settled 8 points, or 0.05 percent, lower at 14,736.40.

Midcaps and smallcaps outperformed their large peers as the BSE midcap and smallcap indices closed 0.99 percent and 0.73 percent up.

Despite some cooling off, the 10-year US bond yields remained near 1.7 percent, weighing on riskier equities.

Rising US bond yields have been a concern of late for markets across the globe as it makes equity valuations appear stretched.

India reported 46,951 new coronavirus infections in a day, the highest so far this year, taking the nationwide COVID-19 tally to 1,16,46,081, the Union Health Ministry's data on March 22 shows.

While vaccination is underway, rising cases and partial lockdowns in parts of the country have triggered fresh concerns that the pandemic's second wave may derail the nascent economic recovery.

"There is a major dampener in the form of fast-rising COVID cases, especially in some economically significant cities. Restricted economic activity in these regions might impact the optimistic growth projections for FY22. Prepare for high volatility. Sharp dips may be used to buy high-quality stocks in financials, IT, cement, chemicals and FMCG," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Mumbai, which is the country's financial capital, is among the worst-hit cities. Maharashtra, of which it is the capital, has been reporting the highest number of daily infections in the country, with a daily count that is higher than that of the previous day.

Sustained high metal and crude oil prices have added to the concerns of inflation in the country. Brokerage firm Kotak Institutional Equities pointed out that continued high metal and oil prices will feed into overall inflation.

"We are already staring at high core inflation through FY2022. Higher-than-expected inflation expectations may complicate the RBI’s efforts to manage bond yields, which already face upside risks from the government’s large borrowing programme and related large supply-demand mismatch in government bonds," Kotak said.

"Fear of the second wave of Covid-19, elevated bond yield and weak global cues is weighing on the domestic market. The expectation of a rise in inflation is also impacting the market. The market has marched well in anticipation of faster economic recovery and is taking a breather given tightening restrictions and an increase in future interest rate, spiking fear of a slower recovery," said Vinod Nair, Head of Research at Geojit Financial Services.

HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank, Bajaj Finance, SBI and Kotak Mahindra Bank ended in the red, keeping the benchmark indices down.

Nifty Bank index fell 1.63 percent while Nifty Private Bank index declined 1.70 percent and the Nifty PSU Bank index lost 1.08 percent. Nifty Financial Services fell 1.15 percent.

The Nifty slipped below its 50-day moving average at 14,757. As per Chandan Taparia, Vice President and Derivatives Analyst at Motilal Oswal Financial Services, the index has to decisively hold above 14,700 to witness an up move towards 14,900 and 15,000. On the downside, immediate support exists at 14,600 then 14,450.

"Nifty is trading near its 50 DMA and settled the day flattish near its opening levels. It formed a Doji sort of candle on the daily scale and negated its formation of lower highs from the past few sessions. Now, it has to hold above 14,700 to witness an up move towards 14,900 and 15,000 while on the downside immediate support exists at 14,600 then 14,450," Taparia said.

Ashis Biswas, Head of Technical Research at CapitalVia Global Research, said the technical evidence supported range-bound trade.

"Investors should adopt a buy-on-dips approach. Multiple momentum indicators are not confirming their bias. Lack of weight of evidence indicates a sideways market structure is likely," Biswas said.

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