Markets tank as bears dig in, FIIs rush out

Indian stocks plunged after hitting a record high last week, with the benchmark indices losing nearly 5% in the past four trading sessions. Benchmark indices lost 2% on Wednesday to end trading at the lowest level in nearly a month as the approaching budget left investors increasingly nervous.

Concerns around elevated valuations of stocks may have also triggered the fall, analysts said.

The BSE Sensex fell 937.66 points, or 1.94%, to 47,409.93. The National Stock Exchange’s broader Nifty index shed 1.91% to 13,967.50. The sell-off in Indian markets is largely due to caution ahead of the Union budget and as foreign portfolio investors turned sellers after being net buyers for the past 3-4 months, said Pankaj Pandey, head of research at ICICI Direct. However, he said the decline is healthy and is an interim consolidation phase before the markets begin the next leg of the rally. “We continue to remain upbeat on Indian equities in the medium term, given the resilient economic and corporate recovery,” Pandey said. Stocks in the Asia-Pacific region were mixed on Wednesday. The Nikkei index in Japan rose 0.31%; the Topix in Taiwan gained 0.65%; South Korea’s Kospi closed 0.57% lower while the mainland Chinese Shanghai Composite rose 0.11%.

The US Federal Reserve is due to announce results of its two-day policy meeting on Wednesday night. Analysts expect the Fed to stick to its dovish tone to support the economic recovery, while the central bank’s outlook will set the direction for FII flows into equities. After a robust rally in 2020, Indian markets have turned negative this year following the sharp sell-off in the past few sessions. In both rupee and dollar terms, the Sensex is down about 1% in 2021 so far while MSCI Emerging Markets index is up 7% and MSCI World has gained over 2% in the period.

However, analysts said the market correction is short-term and profit-booking by investors is temporary.

“Markets are looking oversold from a short-term perspective and could see some bounce-back in the next couple of days. Such corrections are healthy for markets, and we remain constructive on equities from the medium term outlook,” said Gaurav Dua, head of capital market strategy and investments at Sharekhan by BNP Paribas.