Indian stock market indices fell 1 percent each on Wednesday, weighed down by profit-taking at higher levels. The Sensex fell over 900 points to below 79,600 levels, while the Nifty 50 index slumped over 200 points to below 24,200.
The Sensex index fell 915.88 points to a low of 79,435.76, while the Nifty 50 index slumped 291 points to a low of 24,141.80.The benchmark Nifty 50 index hit a record high of 24,461.05 at the start of trade today.
The Bank Nifty index also fell around 1% after dropping 491 points to a low of 52,077.90.
All sectoral indices were down with Nifty Auto, Nifty PSU Bank, Nifty IT and Nifty Oil & Gas indices seeing the largest declines. Selling also intensified in the broader market. Nifty Smallcap 100 and Nifty Midcap 100 indices fell by over 1.5 per cent each.
Equity benchmarks Sensex and Nifty 50 hit fresh record highs on Tuesday, but concerns over expensive valuations, caution ahead of first-quarter earnings and mixed signals in global markets weighed on investor sentiment as profit-taking intensified.
“Investors should be wary of rising speculative activity in the small-cap space, where managers are inflating prices of many stocks with low float,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
On the technical front, Nifty broke through the key downside support at 24,300 levels.
Shrey Jain, founder and CEO, SAS Online, pointed out that Bank Nifty continues to underperform compared to the Nifty.
“At weekly expiry today, we expect Bank Nifty to remain close to the 52,500 levels, however a pullback towards 52,250 could be a buying opportunity. One can wait for a directional move that may result from any news event. A decisive break in either direction is likely to lead to a trend move,” Jain said.
Here are the main reasons why the stock market is falling today:
Mixed Global Cues
Asian markets were mixed after an overnight rally on Wall Street following dovish comments from Federal Reserve Chairman Jerome Powell, as market participants focused on inflation data from Japan and China.
China’s consumer price inflation rose 0.2% year-on-year in June, while producer prices fell 0.8% year-on-year, as expected. Japan’s wholesale price inflation rose 2.9% year-on-year in June.
Take profit
With both the indices performing well, investors opted for profit booking in the equity market. The Sensex index hit an all-time high of 80,481.36 in early morning trade today (July 10) while the Nifty 50 index also hit an all-time high of 24,461.05. Due to the overvaluation of the market, investors booked profits in overvalued stocks.
Uncertainty about interest rate cuts
Growing uncertainty over whether the Federal Reserve will cut interest rates this year weighed on stocks, with Fed Chairman Jerome Powell playing down the timing of any cuts in the central bank’s testimony before Congress.
Powell said it would not be appropriate to cut rates until the Fed has “greater confidence” that inflation is heading toward its 2% target.
“We are well aware that we face risks on two sides right now,” Powell told the Senate Banking Committee, saying the focus could no longer be solely on inflation “running above” the central bank’s 2 percent target.
Domestic inflation concerns
Investor sentiment was also dampened by concerns over rising domestic inflation, India’s Consumer Price Index (CPI)-based inflation, or retail inflation, which is expected to rise in June.
Analysts say CPI inflation is expected to rise to 5% in June from 4.75% in May, driven by higher food prices, mainly due to higher vegetable prices. Core CPI inflation is expected to bottom out but is likely to remain at 3.2% in June.
First Quarter Results
First quarter performance of Indian companies is expected to be gloomy. Nifty 50 net profit is expected to decline quarter-on-quarter. According to Kotak Institutional Equities, BSE-30 index’s net profit for Q1FY25 may increase by 8.1% YoY but decline by 8.4% quarter-on-quarter. For Nifty 50 index, PAT is expected to remain flat YoY but decline by 10.7% quarter-on-quarter.
Brokerage firms have projected the following EPS (earnings per share) for the Sensex index: ₹In fiscal 2013, the number was 3,521. ₹4,063 in FY2014. EPS of Nifty 50 is ₹1,093 and ₹In fiscal 2013 and 2014, the number was 1,249.
Technical View
Rajesh Bhosale, equity technical analyst at Angel One, believes the market is overbought based on a number of indicators.
“Hence, I would advise against any aggressive long positions. The key levels to watch are 24,600-24,650 which is the golden ratio retracement of the panicked fall seen during the election day results announcement. On the downside, immediate support is 24,330 followed by 24,160,” he said.
Defensive sectors such as FMCG and pharma have been favoured in recent sessions, while auto stocks have also shown strength. Bhosale advises traders to focus on these areas for better momentum and risk-return relative to major indices.
Disclaimer: The views and recommendations expressed above are those of the individual analysts or brokerage firms and not that of Mint. We recommend that you check with a qualified professional before making any investment decisions.
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