Taking Stock: Sensex, Nifty post over 2% weekly fall, steepest decline in 20 weeks

Benchmark Sensex lost 2.2 percent during the week while Nifty fell 2.1 percent. This was the steepest weekly fall since October 2023. BSE MidCap and SmallCap lost around 4% and 6%, respectively.

India's benchmark Sensex and Nifty faced their first weekly decline after four weeks of gains and posted around two percent loss during the week, the steepest weekly decline in 20 weeks. Broad-based selling and a meltdown in mid and smallcap stocks continued, alarming investors amidst regulatory warnings.

The benchmark Sensex lost 2.2 percent during the week while Nifty fell 2.1 percent. This was the steepest weekly fall since October 2023. BSE MidCap and SmallCap lost around 4 percent and 6 percent, respectively.

Weakness in global equities, driven by discouraging US data, reduced expectations of a Federal Reserve interest rate cut, further dampening sentiments. Separate reports on Thursday revealed that US producer prices exceeded forecasts in February, while fewer individuals applied for and received jobless benefits than anticipated, weakening the case for a rate cut by the Fed.

BSE MidCap and SmallCap stocks have faced heavy selling since mid-February, following SEBI's directive to mutual funds to safeguard investors amidst concerns of overheating. Analysts anticipated the decline due to inflated valuations post-2023 bull run, with BSE SmallCap up 74 percent and MidCap index over 60 percent in the past year, raising caution. The ongoing market correction is seen as healthy, aiming to balance overbought zones, analysts said.

The SEBI Chairperson recently announced mandatory disclosure for mutual funds focusing on stress testing by March 15. This aims to gauge how quickly funds can exit portfolios during stress. It addresses challenges faced during redemptions in illiquid markets. The disclosure informs investors about potential outcomes in small-cap and mid-cap funds during stress.

AMFI also outlined stress test guidelines for small-cap and midcap schemes, directing fund houses to submit results every 15 days, with the first report due by March 15. These tests reveal portfolio liquidity, crucial for swift investor withdrawals during market collapses and increased redemptions.

Outlook for March 18

Prashanth Tapse, Senior VP (Research), Mehta Equities:

Domestic equities followed global cues as weak US and Asian markets fuelled extended profit-taking with investors selling auto, oil & gas, banking and power stocks. The recent subdued economic readings related to inflation and IIP numbers too didn't help either, which further aggravated the bearish mood during the week. With uncertainty around, local investors will closely follow global markets to decide on their exposure to equities.

Ajit Mishra, SVP - Technical Research, Religare Broking:

Markets traded lackluster amid mixed cues and lost over half a percent. After the initial downtick, the Nifty inched gradually lower and almost reached closer to Thursday’s low.  Though it tried to recoup losses in the latter half, pressure on select heavyweights capped the recovery. Eventually, it settled at 22,024 level; down by 0.53 percent. Most sectors traded in line with the move and settled in the red wherein auto, energy and pharma were among the top losers. Meanwhile, the broader indices traded mixed and that resulted in neutral market breadth.

Indications are in favor of consolidation with negative bias until the Nifty decisively reclaims 22,250 levels. However, the pace of decline would remain gradual citing the resilience of select heavyweights across sectors. Traders should continue with a stock-specific approach and maintain positions on both sides.

Shrikant Chouhan, Head Equity Research, Kotak Securities:

In the last week, the benchmark indices witnessed profit booking at higher levels, after a sharp decline the Nifty ended 2.20 percent lower while the Sensex shed over 1600 points. Among Sectors, the majority of sectoral indices witnessed profit booking at higher levels Reality and Media indices lost the most, shed nearly 9 percent. Technically, on weekly charts the index has formed a long bearish candle and it is also trading below the 20 day SMA (Simple Moving Average) which is largely negative. We are of the view that, as long as the index is trading below 20 day SMA or 22200/73200 the weak formation is likely to continue. Below the same, the market could slip till 21800-21700/72000-71700. On the flip side, for the bulls 22150/73000 and 22200/73200- or 20-day SMA would be the key resistance areas.

Fresh uptrend rally possible only after dismissal of 20 day SMA or 73200. Above the same, it could retest the level of 22300-22350/73500-73700 For Bank Nifty, 50 day SMA or 46500 would act as a sacrosanct zone, above the same, it could move up till 47200-47500. On the other side, below 50 day SMA uptrend would be vulnerable.

Rupak De, Senior Technical Analyst, LKP Securities:

The Nifty has once again closed below the rising trendline, bringing market sentiment back into a state of weakness. The momentum indicator suggests bearish momentum in the near term. Immediate support is situated at the 50DMA, currently at 21,900, which is expected to provide support for the Nifty. A decisive drop below 21,900 could lead to a sharp decline in the index. On the upside, resistance is observed in the range of 22,200-22,250.

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