Markets Reel Under Global Worries, Shell Firm Order
Analysts, however, don’t see a significant correction as domestic liquidity is likely to remain strong
The escalating tensions between the US and North Korea roiled domestic equity markets, which ended down for the third consecutive session on Wednesday at a three-week low. Sentiment was a l s o we i g h e d d o wn b y the Securities and Exchange Board of India’s directive on Monday night to restrict trading in 331 suspected shell companies. The uncertainty saw the India VIX — which measures market perception of the near term risks — spiking to its highest level s i n c e Ma r c h d u r i n g Wednesday’s session.
The Sensex and the Nifty lost 0.7% each to close at 31,797.84 and 9,908.05, respectively. The S&P BSE midcap and smallcap indices bled more, ending down 1.7% each. The India VIX ended up 5.3% at 13.45 after hitting a high of 13.68 intraday — its highest since March 14. Foreign portfolio investors sold shares worth ₹ 841.4 crore and domestic in- stitutional investors picked up shares worth ₹ 553.2 crore, provisional data on Wednesday showed.
“The Sebi ban on 331 stocks and the escalating spat between the US and North Korea are pushing investors to sell. Besides that, investors are sitting on profits and markets look overbought,” said Nischal Maheshwari, head of institutional equities at Edelweiss Securities.
In Asia, key regional markets fell ETIG Database up to 1.3% while European stocks were also firmly in the red. The Sensex is now 2.7% away from its lifetime high of 32,686.48 and the Nifty is 2.3% away from all-time high of 10,137.85, hit earlier this month.
Analysts don’t foresee a significant correction as the domestic liquidity factor is likely to remain a strong supporting factor. “Domestic flow of money into equities is too strong to allow for a meaningful correction for a sustained period of time,” said Ritesh Jain, CIO at BNP Paribas Asset Management India. Money managers are of the view that if the correction continues, companies that have run up in the recent past defying fundamentals are likely to get more impacted than fundamentally sound companies.
They see the mid and small cap stocks falling more steeply than the large caps. Among BSE Smallcap constituents, JBF Industries, HDIL, Shilpi Cable Technologies and Kaveri Seeds have tanked 13-26% in the last three sessions. Within the mid-cap space, Ajanta Pharma, Sun TV Network and Godrej Industries have lost 7-10% in the last three days. Sunil Sharma, CIO at Sanctum Wealth Management said stock valuations in general have run ahead of fundamentals. “It is certainly healthy to have these pauses and the September quarter numbers to some extent may determine market’s direction.”