Dalal Street Corner: Analysts decode 5 reasons which led to market fall on Thursday, what should investors do on Friday?

Extending decline for the third straight session, the Indian markets witnessed a selling spree on Thursday. The Sensex slipped over 600 points and Nifty50 settled above 17750 at the close, while the broader markets too closed in red with both Nifty mid and small cap ending up to 0.1 per cent. 

IT behemoths Infosys and HCL Technologies dragged the market, the most turning out to be the biggest laggards. Bajaj Finserv also declined after Q3 earnings and was among other top losers. HUL, HDFC, RIL, and Dr. Reddy's were also trading almost 2 per cent down each, having extended their losses. 

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Only metals and real estate were in the green, while the Nifty IT and pharma indices were down more than 1%. Lupin, Divis Labs, Gland Pharma, Cipla, Laurus Labs, Biocon, and Sun Pharma were all down 1-2 percent. 

From rising US bond yields to muted Q3 earnings to rise in the new covid variant Omicron, the markets are being dented by multiple factors since the last three days, as frontline indices have been closing around 1 per cent lower each session since Tuesday. 

According to Parth Nyati, Founder, Tradingo, “If we look at the trend of last three years then the market starts to correct between 15-20th January and then it witnesses post-budget rally and same is visible for this year as well.”  

 Rising US Bond Yields 

The Indian equity market is showing weakness for the third day in a row on the back of FIIs' selling, rising US bond yields, and concerns of inflation however this is just a correction that should be taken as a buying opportunity, Tradingo Founder said. 

“High volatility due to rising bond yields is pressuring foreign investors to pull out funds from highly valued markets like India, Vinod Nair, Head of Research at Geojit Financial Services echoed. 

The Geaojit Financial's analyst said, “Persistent concern over global inflation and likely Fed rate hike acted as the major headwinds for the domestic market to tumble for the third consecutive day.”  

Muted Q3 Earnings 

Despite recovery in demand during the third quarter of FY22, the input cost and supply chain issue is battering the quarterly earnings of the companies as majority of them have reported mute numbers. 

In this regard, Nair said, “The on-going global volatility drained investor confidence as the recent earnings failed to excite the market.” 

Selling by FIIs/FPIs 

Amid weak global sentiments, the foreign institutional investors are on selling spree for the third straight session on Thursday. As on Wednesday, the FIIs remained net sellers for Rs 2704.77 crore in the Indian markets, similarly, DIIs have also turned sellers for meagre Rs 195.07 crore. 

The UN trade organisation reported that FDI flows to India in 2021 were 26 per cent lower than in 2020, owing to significant mergers and acquisitions that were not replicated, Gaurav Garg, Head of Research, Capitalvia Global Research Ltd said in his comment.  

Rise in Omicron/Covid 

The omicron scare continues to impact the investors sentiment as India reported 3,17,532 new coronavirus infections, the highest in 249 days, taking the total tally to 3,82,18,773, which includes 9,287 cases of the Omicron, as per the Union Health Ministry data updated on Thursday.  

The active cases rose to 19,24,051, the highest in 234 days, while the death toll climbed to 4,87,693 with 491 fresh fatalities, the data updated at 8 am stated. 

Technical Check

Nifty is trading near critical support of 17650 which was the previous breakout level while 17500 is another important support level, while 18000-18200 is an immediate resistance area on the upside, above this, a move towards an all-time high is expected, the market analyst said.  

Market research suggests, 17600 will be an important support level from a short-term perspective. If it closes below 17600, an extension of correction is likely till 17350-17400 levels, Vijay Dhanotiya, Category Lead- HNI Products at CapitalVia Global Research Limited said in a comment. 

Rupak De, Senior Technical Analyst at LKP Securities also said, “During the entire day Nifty remained below 10EMA which suggests near term weak trend. The trend is likely to remain weak if the Nifty50 sustains below 17900. On the lower end support seen at 17610, below which more fall may come.”