After hitting record high levels – Sensex at 72,562 and Nifty at 21,834 – on the first trading day of the new year, bulls were seen having second thoughts on Tuesday. Sensex fell over 650 points to give up its control over Mt 72K while Nifty failed to sustain 21,700 level.
Sensex ended the day 379 points weaker at 71,892 while Nifty ended at 21,665.80. Small and midcaps were relatively less affected. Nifty Bank ended 1% weaker while Nifty Auto fell 1.37% on weaker than expected December sales numbers. Nifty IT and Realty also fell over 1% each. Nifty Pharma was the top gainer in sectoral churning as it rallied around 2.5%.
An important trend to watch out for is the spike in the volatility index VIX to 14.5, which indicates that high volatility is around the corner, points out VK Vijayakumar of Geojit Financial Services.
In Monday’s session, FIIs were seen reducing their future index long position holdings by 0.71% and increasing future index shorts by 2.55%.
Here are key factors behind Sensex fall today:
1) Profit booking at peak levels
Nifty, which hit a fresh record high of 21,834.35 in Monday’s session, saw a sell-off in the last 30 minutes of yesterday’s trading session, signifying the market can be vulnerable at peaks due to profit booking.
2) Valuation worries
While the valuations of Sensex and Nifty are not yet in the danger zone, investors have been raising concerns about the possibility of euphoria building up in pockets of the market, particularly in smaller stocks.
Kotak Institutional Equities sees a modest upside of just 1% for Nifty by December 2024. “As per our ‘Nifty fair value’ model, the index is now close to 20% overvalued. Thus, we do not anticipate a large upside to the index from this point. The most likely outcome for the index in the next 6-9 month period seems to be a time correction,” the brokerage said.
3) Derivative factor
Whenever there is a decrease in the FII long short ratio supported by PCR bearish divergence, Nifty tends to correct. “The first time this happened was on July 19 and 20 when Nifty made a top of 19,992 and corrected 3.85%. The second time it happened was on September 14 and Nifty made a top of 20,222 on September 15 and corrected 6.84%. Nifty has given the same signal again on January 1,” SAMCO Securities said.
4) Auto effect
December month sales data shows that auto OEMs’ volumes grew on a YoY basis across segments, barring CVs and tractors, with the 2W segment leading the growth, while PV volume displayed moderate growth.
With the numbers turning out to be below expectations, the Nifty Auto index fell 1.4% with Eicher Motors and Ashok Leyland leading the fall with a loss of around 3% each.
5) Red Sea worries
Investors were closely tracking tensions in the Middle east after Iran dispatched a warship to the Red Sea as the US Navy destroyed three Houthi boats. Brent crude climbed above $78 a barrel after declining by 5% over the prior three sessions, with West Texas Intermediate near $73. The US Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea, resulting in the sinking of the three boats. In response, Iran’s Alborz destroyer entered the vital waterway on Monday, state media said.
6) Weak earnings outlook from IT
Traders have begun to gear their portfolios towards the upcoming Q3 earnings season which begins next week with TCS and Infosys leading the show on January 11.
“During 3QFY24, we expect aggregate revenue growth for our coverage universe to remain muted at 0.8% QoQcc, given the seasonal impact of furloughs, which are deeper this year,” Jefferies said, adding that Accenture’s recent results do not indicate a recovery on the ground for IT firms and that Nifty IT’s 31% premium to Nifty looks rich.
The IT index fell over 1%.
7) January effect
In the last 12 years, Nifty 50 has given negative returns in 7 instances in January. In fact, it has given negative returns for 5 years in a row between 2019 and 2023.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
