Dalal Street Corner: Markets see biggest fall since April 2021, five factors to watch out - what should investors do on Tuesday?

The Indian markets turned negative for the 5th day, after the benchmark indices - Sensex and Nifty50 - post biggest fall since April 2021. The former slipped almost 1550 points and the latter settled below the 17,150 level. The market breadth firmly in favour of declines, as the advance-decline ratio stood at 1:14. 

The volatility index touched 23.90 intraday, the highest level since May 2021. Volatility surged to its two months high levels signalling wild swings with a strong Bear grip in the market, as per Chandan Taparia Vice President & Analyst-Derivatives at Motilal Oswal Financial Services Limited. 

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The mid and small-caps underperformed then benchmarks as each fell by around 4 and 5 per cent, respectively. The reality and media stocks dragging the broader markets most at the close.  

Bajaj Twins (Bajaj Finserv & Bajaj Fin) extend Friday’s loss, fall by 4-6 per cent and IT stocks continue the down move, Nifty IT set for worst monthly fall since March 2020, down 10 per cent in January. 

Recently listed new-age companies see a sharp fall, as Zomato slipped by 20 per cent, Nykaa down 13 per cent and PB Fintech dipped by 11 per cent. The BSE-listed companies erased the market cap over Rs 9 lakh crore today and Rs 20 lakh crore in last 5 sessions. 

“Sell-off in global markets, weak Q3 results and pre-budget nervousness triggered heavy sell-off in the domestic bourses as risk sentiment took a blow ahead of the FOMC meeting starting tomorrow, Vinod Nair, Head of Research at Geojit Financial Services said in post-market comment on Monday. 

As per Amar Ambani, Senior President & Head – Institutional Equities, YES Securities, “There were no positive triggers to take the market upwards in the near term and which is why volumes in large-cap names are down 20-30 per cent in 2022 so far, as compared to 2021, even when market caps are higher by 20-25 per cent on a year-on-year basis.” 

Five factors that led the dent on the markets on Monday 

Weak Global Cues 

“Investors are keenly awaiting the result of the two-day Fed meeting where the US Central Bank is expected to provide more guidance on its rate hike plans, Nair said in his comment on global view. 

According to Devang Mehta, Head - Equity Advisory, Centrum Wealth, Nasdaq has corrected by around 14 percent which has taken the sheen away from very good IT numbers & guidance locally 

Pre-Budget Week 

If we look at the last three years' trend then we see a pre-budget sell-off on the back of global weakness then we see a post-budget rally however the long-term trend in the first quarter of any calendar year means January to March remains weak, Parth Nyati, Founder, Tradingo said in a note. 

“A further 500 points downside cannot be ruled out in the Nifty, on the brighter side, the stock market is much lighter and healthier, heading into the Union Budget,” Ambani said. 

FIIs Selling Pressure 

According to Geojit Financial analyst, “All sectors hit rough weather, stocks of the new age tech companies were the most affected due to drop in growth of profitability amid expensive valuations.” 

FII's have been selling in cash segment as well as in the index futures segment since last few sessions which has resulted in selling pressure, Ruchit Jain, Lead Research, 5paisa.com said in a comment. 

Omicron Scare 

According to Health Ministry, India logs 3,06,064 new Covid cases with active caseload currently stands at 22,49,335 cases. 

Though the covid numbers are still something to ponder on, but omicron variant not being as severe has made market believe that the days of easy liquidity seem to be nearing an end, Mehta said. 

Technical Check 

Rupak De, Senior Technical Analyst at LKP Securities said, “During the day bears breached crucial support levels in Nifty without any fights from the bulls. Moreover, momentum indicator remained in a bearish crossover on the daily chart.” 

He added, “Going forward, the index is likely to remain weak. However, sustained trade above 17150 may induce a relief rally in the market. On the other hand, fall below 17150 may trigger correction towards 17000/1682.” 

“Nifty50 formed a big Bearish candle on daily scale and has been forming lower lows from the last five sessions, and now till it remains below 17350 zones, weakness could be seen towards 17000 and 16850 whereas hurdles exists at 17500 and 17777 marks,” Taparia said in a comment