Dalal Street Corner: Intense profit booking in IT, broader market stocks pull down market for 3rd day in row; what should investors do?

Amid fears of inflation, a massive profit booking in IT, midcap and small cap stocks forced the market to close in the red for the third consecutive session as benchmarks dropped more than half per cent on Wednesday. Nifty IT witnessed intense selling pressure as the Information technology index declined 3.38% in today's session. IT behemoth Tata Consultancy Services (TCS) led the fall in the index, ending lower by 3.7% on Wednesday. Tech Mahindra, Wipro, Infosys, HCL Tech were other IT stocks that ended in the red.  

Besides, in the broader market, Nifty midcap and small cap declined by 2.4% and 3.4% respectively. BSE Midcap index tanked by 430 points to end at 21,829, while BSE small cap dropped 761 points or 2.9% on Wednesday 

As the market has failed to close in the green so far this week, here is what experts say about current trends in the market and suggest what investors should do in the current scenario. 

S Ranganathan, Head of Research at LKP securities
On a day when the Bank Nifty held steady, the other Sectoral Indices led by IT saw intense profit taking by FII's with geo-political issues and supply-side disruptions taking centre-stage. Declines outnumbered advances in the broader market, even though measures to reign inflation were taken to curb exports in sectors which earned bumper profits. A look at the Midcap & Smallcap100 Indices today is reflective of the damage done outside the Benchmark Indices. 

Vinod Nair, Head of Research at Geojit Financial Services. 

Domestic indices wavered, tracking mixed sentiments from the global markets as investors assessed the possibility of a recession in the US followed by the Fed policy tightening. Global markets are awaiting the release of the Fed minutes, which will be evaluated for details on the path of the upcoming rate hikes. In this whipsaw market, investors can resort to defensives & value stocks & sector. 

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 
The dominant trend impacting the market is the relentless selling by FPIs which, as on 25th May, has touched Rs 168421 crore for CY 2022. As long as this massive selling continues, the market will remain weak. Another major trend in the market is the shift from growth to value. Value buying happening in segments like banking, in spite of FPI selling, is imparting resilience to such segments. 

The government's initiatives to rein inflation indicate margin compression for segments like sugar, edible oil and metals. But firms with pricing power can weather this storm. 

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribhas

The Nifty continued with its volatile action for yet another session. The minor degree correction that started from 16400 continued on May 25. In terms of the Fibonacci retracement, the index has done 61.8% retracement of the recent leg of the rise, which is near 16000. Also, there is a gap area on the daily chart, which is 16003-15984. Thus the index has reached near its short term support. Hereon it is expected to attract buying support. On the higher side, the Nifty can once again take a leap towards 16400 in the short term. 16200-16230 will be the intermediate hurdle zone to watch out for. On the other hand, the broader end of the market can continue to remain weak in the short term.

Expert: Ajit Mishra, VP - Research, Religare Broking Ltd

Markets traded under pressure for yet another day and lost over half a percent. Mixed global cues and lack of any domestic trigger kept the mood somber. After the initial uptick, the benchmark inched gradually lower as the day progressed and settled around the day’s low.

We’re just replicating global sentiments which are not showing any sign of improvement. Besides, we don’t expect any relief on the volatility front due to the scheduled expiry of May month derivatives contracts. Since most sectors are reeling under pressure, participants should align their positions accordingly and use rebound to create shorts.