The Sensex ended at 48,878.54, down 746.22 points. The Nifty closed at 14,371.90, down 218.45 points. India’s Volatility Index, or VIX, gained 1.1% to 22.42, suggesting traders see higher near-term risks to the market.
Foreign portfolio investors (FPIs) net sold shares worth Rs 635.69 crore on Friday, while their domestic peers did so to the tune of Rs 1,290.35 crore. So far, despite persistent selling by domestic institutions, markets had been holding up because of FPI inflows aided by a weaker dollar. Friday’s selling is only the sixth time since November that FPIs have been net sellers in a session.
Investors have been concerned that a rebound in the US currency, at least in the short term, could lead to a reversal of flows.
“The key reason is the scale of the cyclical recovery in the coming fiscal year as a result of the dramatic collapse in growth in the second quarter of last calendar year when real GDP declined by 23.9% YoY,” Wood said in his weekly Greed and Fear note.
Brokers said several domestic investors were cutting exposure to stocks, with the Sensex and Nifty running up over 95% since March 23, when the market hit four-year lows after a month-long sell-off sparked by the spread of Covid-19. After the Sensex crossed 50,000 briefly on Thursday, traders rushed to cut bullish bets as markets showed signs of fatigue.
“50,000 is just a number and market has been overbought for a long time. Large corrections may not happen as liquidity continues,” said Piyush Garg, chief investment officer at ICICI Securities. “Liquidity has to dry up for big corrections to happen.”
The focus is likely to shift to the budget next week, with just five sessions remaining before the key financial event, scheduled for February 1.