Just ahead of the monthly derivative expiry, Nifty gave up its hold over the 22,000 level while Sensex fell around 800 points or 1% to the day’s low at 72,300 on Wednesday. The sell-off was deeper in the broader market where midcaps, smallcaps and microcap indices fell around 2% each. In the process, Dalal Street investors were left poorer by about Rs 6 lakh crore as the market capitalisation of all BSE-listed stocks fell to Rs 386 lakh crore.
Nifty has been consolidating in a sideways move but consistent closure above 22,000 for eight consecutive sessions had suggested a prevailing positive trend. Technical analysts believe that if the breakout below 22,000 sustains, it could trigger a directional move on the downside.
“Market is likely to be in a range-bound zone in the near term. FIIs have sharply reduced their selling this month and have turned buyers to the tune of Rs 872 crore in the cash market, so far in February, despite the high US bond yields. This indicates that FIIs are unlikely to press big selling pulling the market sharply down,” said Dr. V K Vijayakumar of Geojit Financial Services.
Here are key factors behind the fall in Sensex, Nifty and smallcaps:
1) Sebi plunges into action
The gravity-defying rally in smallcaps and midcaps has caught the attention of markets regulator Sebi which has asked mutual funds to disclose more about risks in the space where liquidity could be a challenge.
Mutual funds are being asked to disclose how long it might take to accommodate large redemptions, what impact large outflows could have on the value of the portfolio and how much cash and liquid assets the fund holds to meet outflows, Reuters reported.
2) Fading hopes from Fed
Traders are waiting for the release of US’ personal consumption expenditures price index (PCE) data for January, which could influence Fed rate hikes. Hopes of a rate cut in the June meeting has reduced to 59%, according to the CME Group’s FedWatch tool.
3) Valuations
With the market cap-to-GDP ratio zooming above 120%, investors have been finding little comfort in valuations, more so in the broader market. After the end of the December quarter earnings season, expectations for FY25 have not moved much on aggregate.
4) Global markets
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.44% lower at 525.40 points but hovering around a near seven-month peak of 531.56 after a strong rally. Japan’s benchmark Nikkei 225 edged 0.3% lower, Hang Seng in Hong Kong slipped 1.4%, while the Shanghai Composite sank 1.9%.
5) Expiry pressure
A part of the volatility in the market today is also attributed to the monthly F&O expiry tommorrow.
“For February monthly series, 22,200 call has significant open interest, followed by 22,300 strikes. On the put side, 22,200 has significant open interest, followed by 22,100 strike implying the zone of 22,140-22,120 will act as immediate support for the index. While, on the upside the level of 22,270 will act as immediate resistance for the index,” SBI Securities said.
6) Profit booking
The two contrasting themes of buy the dip and sell the rise has been dominating the market mood in recent weeks. While valuations are supporting the case for booking profits, retail-led flush of money is protecting the downside.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
