Sensex falls 220 points, Nifty at 14,525 as valuation concerns grows

Sensex falls 220 points, Nifty at 14,525 as valuation concerns grows

NEW DELHI: Profit booking continued on Dalal Street, especially in IT names that came out with their quarterly numbers, taking benchmark indices lower on Friday even as global markets continued their rally.

Indices in India have been in a secular rally, hitting fresh highs almost every day. Foreign investors have continued to provide thrust to the market but expensive equities seems to have spooked investors finally.

“As repeatedly pointed out, most indicators of market valuations are much higher than long-term averages. Now, an important indicator – market cap to GDP- has crossed 100 per cent indicating overvaluation. However, economic indicators are suggesting faster than expected recovery in the economy,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“Present valuations can be justified only if the recovery sustains and gathers momentum. In the short-run expectations regarding the budget are likely to influence market movements. Retail investors buying low-grade stocks is an extremely risky investment.”

Factors driving markets

  • Vaccination to begin: In India, the government will kickstart the vaccination drive from Saturday onwards. It has an ambitious plan of inoculating 30 crore vulnerable citizens in the first phase.
  • Fed remains dovish: With the US economy still far from its inflation and employment goals it is too early for the Federal Reserve to discuss changing its monthly bond purchases, Powell said on Thursday.
  • Unemployment grows: The number of Americans filing first-time applications for unemployment benefits surged last week, confirming a weakening in labor market conditions with a worsening COVID-19 pandemic.
  • $2 trillion Stimulus coming: Biden unveiled a $1.9 trillion stimulus package proposal on Thursday designed to jump-start the economy and speed up the US response to the coronavirus pandemic.

How are bluechips doing

After opening in the red, benchmark indices dropped further. At 10.07 am, BSE flagship Sensex was down 218 points or 0.44 per cent to 49,366. NSE benchmark Nifty followed and fell 69 points or 0.48 per cent to 14,525.

“The resistance patch of 14,600-14,650 has been very effective. The markets are finding it difficult to move up. We need to get past 14,700 in order to resume this uptrend. If the market manages to cross that level, the index should go up to levels closer to 15,000. On the flip side if we break the support of 14,350, we can drop to 14,000,” said Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments.

In the 50-share pack Nifty, Bharti Airtel was the biggest gainer, up 3.32 per cent. UPL,Tata Motors, GAIL, HDFC Life Insurance, NTPC, Tata Steel and Bajaj Finance were among other gainers.

Wipro was the top loser in the pack, down 2.22 per cent. Hero MotoCorp, Shree Cement, Tech Mahindra, HCL Tech, Asian Paints, HDFC Bank, Kotak Mahindra Bank and Dr Reddy’s Labs were other losers in the pack.

Broader markets

Broader market indices traded with gains outperforming their headline peers in morning trade. Nifty Smallcap added 0.04 per cent while Nifty Midcap rose 0.08 per cent. Broadest index on NSE, Nifty 500 was down 0.23 per cent.

Sterlite Tech, Trident, Bharat Dynamics, SAIL Voda Idea and Crompton Greaves were among major gainers from the space while Balkrishna Industries, Fortis, Mphasis, Firstsource Solution, RVNL and Aegis Chemicals were under selling pressure.

Global markets

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent around midday in Asia, just off a record high. Hong Kong’s Hang Seng added 0.32 per cent, while Australia’s ASX 200 rose 0.17 per cent.

Japan’s Nikkei was down 0.21 per cent after touching three-decade highs in the previous session, Chinese blue-chips lost nearly 1 per cent amid worries over rising Covid-19 cases in the country.

S&P 500 e-mini futures turned lower on Friday after Biden’s remarks and were last down 0.222 per cent at 3,783.

What to expect:

  • Q3 earnings: PVR, L&T Financial Holdings, and Hathway Cable will be releasing their quarterly numbers.
  • Loan growth: RBI will release loan and deposit growth data for the fortnight ended January 1.

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