In a volatile trading session, equity benchmark indices closed 1% lower on Friday ahead of Budget 2021, scheduled next week. Extending fall for the sixth trading session, Sensex ended 588 points lower at 46,285 and Nifty fell 182 points to 13,634. Yesterday, Sensex ended 937 points lower at 47,409 and Nifty fell 271 points to 13,967.
SBI, HDFC, Asian Paints and M&M were among the top losers while IndusInd Bank, M&M, Bajaj Finance and RIL traded as the top gainers today.
On the currency front, Indian rupee rose 9 paise to 72.96 against the US dollar on Friday, despite heavy selling in the domestic equity market and FII outflows. On Thursday, rupee had settled at 73.05 against the American currency.
Here's a look at five factors that led to the fall in Sensex and Nifty today:
1. Union Budget
Traders said volatility is expected ahead of Union Federal Budget 2021-2022 that will be presented on February 1 as the market is awaiting key reforms that could push growth and kickstart the capex cycle in the economy. Analysts are of the view that a continued pullback in domestic markets was mainly led by profit booking ahead of the Union Budget and important global events. The reversal of FIIs from buyers to sellers in the last four sessions, right ahead of the budget also added to the nervousness.
The sharp drop in this week showed that markets have turned highly volatile. Autos, Metals & Financials bore the brunt of selling as traders unwinded positions ahead of Union Budget on February 1.
Kanika Agarrwal, Chief Investment Officer, Upside AI said,"This year, because the economy is still recovering from COVID, the government has a unique opportunity to make structural changes that will have an immediate short-term impact. A perpetual work in progress, we must focus on jobs, output, and infrastructure spending. We hope the government can refocus its effort on reducing the role and size of government through disinvestment, a reasonable and stable tax regime, and friendlier regulations."
2. Economic Survey 2020-21
The market traded volatile throughout the session today after opening in green and fell deep in red in the late trade after the Economic Survey tabled by Finance Minister Nirmala Sitharaman projected 7.7% contraction in India's GDP in FY2020-21. The survey has pegged FY22 GDP growth at 11 per cent on back of "mega vaccination drive" and robust "consumption growth".
Gaurav Garg, Head of Research at CapitalVia Global Research said," The main projections that will be under the radar will be GDP for the year 2021-2022 as it will provide the expectations of the economic recovery. The market expects good GDP expectations for the year 2021-2022. US economic contractions seen this year are the worst since world war 2, the impact of this would be seen on the market in the coming days as it stabilises."
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said,"Economic Survey 2021 argues for more counter-cyclical measures from the govt. If the government goes along the suggestions from the Survey, more govt spending particularly on infrastructure can be expected. GDP growth rate of 11% for FY22 is realistic. The Survey also bats for accelerated privatization. This is in tune with the Atmanibhar package announced by the govt in May. If the focus of the Survey gets reflected in the budget, we are likely to get a reformist budget."
3. Global markets in red
Indian markets opened with heavy gains but reversed the trend and registered heavy cuts on the back of negative global cues. Domestic market participants turned pessimistic by afternoon session today, especially after European markets opened deep in red following reports of COVID-19 vaccine production delays.
Overseas, Asian stocks that opened higher erased early gains and closed in red today, taking cues from the uncertainty that prevailed in global markets as investors remained focused on covid vaccination and key earnings.
Further, an increase in the number of infected COVID-19 cases, prolonged lockdowns and reports of new variants of the virus kept investors at the edge, contributing to the fears that economic impact will be much larger than earlier estimates.
US stocks saw an overnight bounce from heavy losses suffered on Thursday, amid a broad rally as earnings season got off to a strong start.
4. FII outflows
The weakness in the last five sessions was in line with foreign institutional investors (FII) turning into sellers in domestic securities since January 22. As per experts, the trend is to continue ahead of the budget.
Concerns weighed with continued FII outflows in domestic markets as enough to create panic across equities.
FIIs have sold shares worth Rs 6,801.22 crore in last four trading sessions. FIIs offloaded shares worth Rs 3,712.51 crore on net basis on Thursday, according to exchange data.
5. Technical outlook
With a consecutive fall in equities worldwide, the near term outlook for NSE Nifty is likely to be shaky, especially ahead of the D-day. Further, on Friday, Nifty50 broke all its technical supports today, which were placed at 13,800 and 13,700.
During the week, Sensex and Nifty fell by 2,592 points or 5.30% and by 737 points or 5.13%, respectively.
As per traders, valuations of major stocks cooled off in the six-day fall, after the rally to record levels earlier this month. All major sector-based indices except for banking and realty index closed in red today, with almost 3% drop in auto and over 2.5% fall in IT stocks. Market breadth was negative with midcap and small-caps ending weak. Meanwhile, the volatility index NSE VIX gained 4.33% today.
Ashis Biswas, Head of Technical Research at CapitalVia Global Research Limited said, "The market witnessed yet another day where bears were able to dictate the terms after a positive opening. The market might continue to be in the range of 13970-13600 in the next few sessions. 13570-13600 will be an important support zone, while 14000 will be an important resistance. As such we retain our cautious stance and advise the traders to refrain from building a fresh buying position until we see further decisive movement in the market."
Nirali Shah, Senior Research Analyst, Samco Securities said," Nifty50 index posted a big bearish candle after a long period, in fact, this week witnessed meaningful selling on a closing basis after a total of twelve weeks. As markets remain deviated from the mean a little longer than usual, we may see a meaningful dip and a time correction or both in the short term going ahead. All sectoral indices closed negative and Nifty IT, Energy and Realty remained the top losers. A sustained move below 13900 will confirm the bearish scenario as immediate support and resistance now lies at 13700 and 13900 respectively. Traders should stay on the sidelines as the Budget Day could witness massive volatility and random knee-jerk reactions."