Bank Nifty recovered over 1000 points from day’s low, settling above 40,350 on Monday. The index fell over 2% intraday, triggered by the red flags raised by the US short-seller on Adani group’s debt. The shares of the IndusInd Bank lead losses, falling over 1%, dragging the banking index lower but towards the end, majority of Bank Nifty constituents concluded in green. The index slipped below the psychological level of 40,000 but an upside movement can be seen if it sustains above the 39,800 level, according to analysts. ”The Bank Nifty index continued to witness selling pressure, and the index witnessed high volatility during the day. The index is likely to trade in a broad range between 39,500 and 41,525, where put and call writing are visible, respectively. If the index can hold the 39,800 support level, we could see a pullback rally to the 41,000-41,500 levels,” said Kunal Shah, Senior Technical Analyst at LKP Securities.
Why are Bank Nifty, Sensex, Nifty 50 down today?
The Adani-Hindenburg effect
The banking index started to fall after the US-short seller said that it has taken a short position in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivative instruments. The questions on Adani Group’s debt weakened the market sentiment and both the benchmark indices and the banking index witnessed a free fall. “Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure,” Hindenburg report said.
Foreign Investment outflow
The outflow of foreign funds from the domestic markets to relatively cheaper markets like China and Hong Kong pushed the equity benchmark indices to fall over 1%. On Friday, January 27, foreign institutional investors (FII) sold shares worth a net Rs 5,977.86 crore, according to the data available on NSE. “The FPI selling which started early in January gathered momentum towards the close of the month. FPI strategy in January has been selling in India and buying in relatively cheaper markets like China, Hong Kong, South Korea and Thailand. This kind of massive selling along with the crash in Adani stocks has impacted the market sentiments temporarily. Since there has been no pre-budget rally this year, a good budget can trigger a post-budget rally,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. For the month till January 29, FII had sold shares worth a net Rs 29,232.29 crore.
Investors remain cautious ahead of Budget
The volatility in the markets has increased as we move closer towards the budget. “Bank Nifty underperformed the Nifty index in January series as it corrected by 1600 points from 43,252 to 41,647 zones. It closed at the lowest levels of the last 50 trading sessions. It has recently taken a setback which is giving some concern to the Indian market ahead of the Union Budget 2023. Long liquidation was seen in the January series as open interest decreased by 12.31% and the price was down by 3.71% on an expiry-to-expiry basis. Rollover in Bank Nifty stood at 84%, which is lower than its quarterly average of 86.2%,” said Chandan Taparia, Head – Technical & Derivatives Research at Motilal Oswal Financial Services.