Market indices continued to slide for the second consecutive session and closed at day's low in line with weak global equities. Tracking losses in index majors Reliance, HDFC twins and ICICI Bank, Sensex ended 746 points lower at 48,878 and Nifty closed 218 points lower at 14,371.
HDFC, ONGC, ITC, L&T, RIL, NTPC were among the top losers today, while Bajaj Auto, Maruti, M&M, TCS, HUL were among the top gainers on Sensex.
On the currency front, Indian rupee clocked marginal gains by 2 paise to settle at 72.97 amid weak US dollar.
Here are 5 factors that led to the fall today:
1. Banking shares lead losses
Benchmark indices fell for the second day in a row, on the back of selling seen in the banking shares. Axis Bank, IndusInd Bank, HDFC Bank, Kotak Bank, ICICI Bank and SBI led the losses today.
This was after some financial companies announced Q3 earnings, that suggested underperformance in Q3, compared to other sectors.
Ajit Mishra, VP - Research, Religare Broking said," Markets will first react to Reliance numbers in early trade on Monday. The recent underperformance from the banking pack might derail the momentum if it continues next week as well."
2. Profit booking
Slipping from record levels hit in the previous session, broader indices continued to trade in the negative for the second day today, in line with overseas markets. This was on the back of profit-booking by investors at high levels. Market participants said overbought positions were settled on a global scale, as investors took profits after a recent rally driven by hopes of a US economic stimulus.
3. Weak global cues
In Europe, markets closed mixed with major stocks pointing lower but IT stocks showing resilience. The European Central Bank left its key bond-purchase program unchanged on Thursday and also pledged to provide more support for the economy if needed.
In the US, the S&P 500 and Nasdaq closed at record highs on Thursday as investors watched President Joe Biden releasing details of Covid plan on his first full day in office.
Asian stocks traded lower on Friday as investors took some money off the table after a recent rally. In Japan, core consumer prices fell 1% in December from a year earlier, government data showed.
World markets have been flushed with liquidity amid Covid-19 stimulus and lower lending rate by central banks, which has led to an unprecedented rise in both global and domestic equities, increasing the disconnect between the market and economy. As per analysts, the world economy continues to face downward pressures from the sustained spread of coronavirus and will take some time to recover.
Nirali Shah, Senior Research Analyst, Samco Securities said,"The smooth transition of power to Joe Biden and his inauguration kept the mood of the markets cheerful but higher valuations led to profit booking as well during the course of the week."
4. Union Budget
The sharp pullback in the last two trading days showed that markets have turned highly volatile, especially ahead of Budget 2021.
Investors were selling overvalued quality stocks such as Reliance Industries, HDFC and Infosys, ahead of Budget 2021, scheduled to be presented on February 1. As per analysts, the volatility is likely to continue till the Budget.
Nirali Shah, Senior Research Analyst, Samco Securities said,"Up until the Union Budget, markets are expected to witness unusual hype and hysteria on hopes and expectations from the budget which will drive the volatility even higher. Taking a holistic view, large cap players might not see a significant rise but there could be a lot of buzz in small and midcaps. At current price points, market participants may look for trading bets rather than invest for the long haul."
5. Technical outlook
As per traders, valuations of major stocks also cooled off after the recent rally. Except for IT and auto index, all major sector-based indices closed in red today, with almost 4% drop in metal index and around 3% fall in banking and realty index. Market breadth was negative with midcap and small-caps ending weak.
Nifty 50, that is already trading in overbought zone, closed the week at 14,371.9, down by 0.4%.
Ajit Mishra, VP - Research, Religare Broking said," On the benchmark front, we feel a decisive break below 14,200 in Nifty could result in further slide else we will see range-bound sessions ahead. Amid all, there'll be no relief from the volatility front due to the prevailing earnings season and upcoming derivatives expiry. We thus strongly advise keeping a check on naked leveraged positions and waiting for further clarity."
On Nifty technical outlook Rohit Singre, Senior Technical Analyst at LKP Securities said, "Nifty closed a week at 14,371 with loss of 60 points and formed a Doji sort of candle pattern for second consecutive week hinting uncertainty in the markets. Going forward immediate support for Nifty is coming near 14,300-14,200 zone. Any break below 14,200 zone may see some more pressure towards 14k mark. Good hurdle is created near 14,500 zone. Any rise near 14,500 zone will be again position trimming zone above 14,500."
Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities said, "We are seeing some kind of profit booking at higher levels as the Sensex touched the psychological mark of 50,000 this week. The persisting rise in cases has intensified restrictions in parts of Europe, UK and Hong Kong which is impacting global markets. We can expect volatility to remain high next week also as there will be the monthly expiry and it will be the last week before the Union Budget. Earnings print is coming good and we are seeing more upgrades than downgrades. Nifty-50 could remain in the 14,000-15,000 range till budget and any."