Nifty below 23,600 as stocks sell off on earnings, valuation overhang: Key factors

This is the fifth day of selloff for the benchmark indices, with the market breadth looking sharply weaker in the session as larger, index names come under selling pressure.

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Selling pressure has extended on Dalal Street, taking benchmark indices further lower by over a percent after testing five-month lows, as largecaps sold off in broad-based selling, with mid and smallcap indices falling another 2.5-3 percent on November 13.

Nifty 50 is now lower by over a percent, making the selloff more than 10% from the record high hit on September 27, signalling a technical correction. This is the fifth day of selloff for the benchmark indices Nifty 50 and Sensex, with market breadth looking sharply weaker. Nifty Bank index has fallen below the 50,000 level in the session. Track Live updates.

A range of factors have been at play is this leg of selloff that has seen the Sensex come down by over 10% from all-time highs seen in late September. Here's a quick reckoner:

Valuation Risk: Several market participants have raised the concerns of stocks have run up far ahead what their earnings justify. Moneycontrol has been red flagging these concerns, as captured in a recent market poll of brokers and experts, where overwhelming number of participants said high valuation was one of the primary concern.

Earnings Downgrades: India Inc's earnings scorecard too has been showing signs of stress, as captured in a recent note by Jefferies, among other broking houses and investment advisories. Jefferies lowered its FY25 earnings estimates for nearly two-third of the companies under coverage, its steepest downgrade ratio since 2020.

Swiggy Listing: A modest listing of quick-commerce and food delivery platform turned into a FOMO trade of sorts, as investors rushed to lap up shares of Swiggy, sending it higher by 15% in mid-day trade. The market capitalisation of Swiggy has already touched Rs 1 lakh crore, possibly soaking in some of the investments finding their way into equities.

Inflation Overhang: A sharp rise in CPI inflation to 6.2%, a 14-month high, was worse than what a Moneycontrol poll of economists had feared. This has possibly soured sentiment for equities further, potentially ruling any sliver of a chance of rate cut in December's MPC review. Aditi Nayar, chief economist at ICRA said they are pencilling in a RBI rate cut in February, or later.

Also Read: Inflation in nearly half of major states outgrows India's October CPI

Continued FII Selling: Foreign investors have continued to be net sellers, taking the month-till-date sell figure to over Rs 25,000 crore. In the year so far, FIIs have net sold shares worth Rs 2.79 lakh crore, while DIIs have bought Rs 5.43 lakh crore shares. The selling pressure has even spilled over to primary markets, with data showing share of FIIs in bids for IPOs at a mere 15 percent in November, significantly lower than September and October's figure.

Metals Sulk after China Stimulus: Shares of metal companies continue to endure selling after China's recent stimulus measures failed to meet investor expectations. China's underwhelming stimulus led to a fall in international iron ore prices to $100 per tonne. Shares of Hindalco, Tata Steel, JSPL are down in the range of 2-3.5%, with the BSE Metal index down obver 2%.

Trump Agenda: There has been a growing concern that US President-elect Donald Trump’s proposed tariffs may stoke inflation concerns for key markets and may even delay rate cuts, leading to a sharp selloff in Asian markets. The MSCI Asia Pacific index fell to its lowert level in two months.

A key US economic cue is due tonight in US CPI data, which may set the base for inflation expectations. Bloomberg News is quoting experts who see overall CPI rising 0.2% for a fourth month.

Adding to the sour sentiment is the hugely popular Bank Nifty weekly options expiry, which is the last for the series after eight years in existence. Under new rules mandated by capital market regulatory Sebi, NSE has chosen to keep a weekly expiry for the Nifty 50 index only.

Key market participants have recently talked about the possibility of Nifty testing its 200-DMA, and mentioned a level of around 23,400 as a long-term support.