Weeks after hitting consecutive lifetime highs, benchmark indices NSE Nifty 50 and BSE Sensex fall over 1% intraday, erasing most of the monthly gains. Nifty sheds almost 200 points to trade at 18,225, while Sensex loses 629 points, at 61,176. A convergence of various factors come together to cause this fall, say analysts and experts, as the Indian indices fall in line with the global markets.
Factors dragging the indices
Bank of Japan
The fall was precipitated by the Bank of Japan this morning. “This morning, we blame it on the Japanese government as it modified its yield curve control tolerance range while holding interest rates steady lifting yen,” says Prashanth Tapse – Research Analyst, Sr VP Research, Mehta Equities. Asia-Pacific markets fell sharply as a result of the Bank of Japan’s shift, with Japan’s Nikkei 225 index dropping 2.71% after trading in the green. Indian equity indices followed cues from the Asian markets.
Indian markets are not resilient to the movement and sentiment that affects Wall Street. “Major Wall Street indices continued their losing streak for a fourth straight day as investors stayed conservative,” said Naveen Mishra, Senior Research Analyst – Equity Research. “The global indices are correlated and hence expected to witness a slower decline in 2023. Since 1st Dec 2022, DJI and NASDAQ corrected by 4.8% and 8.2% respectively, while FTSE 100 and Nikkie declined by 2.6% and 5.9%, respectively,” states Vinit Bolinjkar, Head of Research, Ventura Securities
US Federal Reserve
“The second round of selling in the global markets is occurring in response to the hawkish US Fed policy, which is also exerting pressure on Indian equity markets,” stated Santosh Meena, Head of Research, Swastika Investmart. According to Naveen Mishra, Senior Research Analyst – Equity Research, CapitalVia Research, “Fed’s continued aggressive posture and growing concerns that its fight to control inflation could send the economy into recession” is another key reason that the markets are lagging. Offering a contrary position, Vinit Bolinjkar, Head of Research, Ventura Securities said, “US economic data indicate a slowing economy and declining inflation which implies that the Fed is close to pausing on rate hikes.”
Concerns in domestic markets
“Institutional investors are concerned about the premium valuations despite the robust fundamentals of the Indian equity markets. While a recession is a fresh fear for international equity markets, higher interest rates are a major concern in the near term,” said Santosh Meena, Head of Research, Swastika Investmart. However, since domestic indices outperformed global markets in December, Vinit Bolinjkar, Head of Research, Ventura Securities believes that the trend is likely to continue as a result of a strong economy, favorable government policies and rising manufacturing output.
Will there be a further correction?
“The market already appears to be in a correction phase. Major indices dipped more than 3% from their all time high in the last 2 weeks,” said Naveen Mishra, Senior Research Analyst – Equity Research, CapitalVia Research. Most analysts believe that the psychological level of 18,000 is a key-support for Nifty and the level will be defended by the bulls. “If the Nifty drops below [18,000], we can anticipate a severe market correction. To reverse the bearish situation, Nifty must strongly retake its 20-DMA of 18,540,” stated Santosh Meena, Head of Research, Swastika Investmart.