The sentiments on Dalal Street have been extremely bullish for a while now, mostly thanks to better than expected earnings from IT firms and recovery in economic conditions. In the last 14 sessions, bluechip indices have closed in the red for just one.
“A weak start for European markets weighed on Indian indices. Plus, lately, the earnings have not been as good as what the first batch of companies announced, which has hit sentiments,” said Deepak Jasani, Head of Retail Research, HDFC Securities.
Major factors behind weakness in market:
Messy EU-UK divorce
All major European markets were trading lower, as EU and UK are racing towards an ugly divorce and countries have started enforcing stringent curbs as virus cases have also picked up. London was down 1.46 per cent, followed by Paris and Frankfurt that sipped 1.31 per cent and 1.15 per cent.
A frustrated European Union and piqued Britain both exhorted the other to compromise to avoid a fast-approaching disruptive finale to the five-year Brexit drama that would add to economic pain from the coronavirus crisis. This unfavourable ending has spooked markets, believe analysts.
Q2 earnings fail to enthuse
Back home, Bajaj Finance said its net profit plunged 35.94 per cent year-on-year drop in net profit at Rs 964.88 crore. Before that, earnings of FMCG majors HUL and Britannia also didn’t enthuse investors.
Analysts also pointed out that the recent rally has not been broad based but led largely by IT stocks and lately some banking names, which does not bode well for overall markets. “The rally has not seen some broad action. It was led by IT and some stock specific blue chips. A lot now depends on how results go on from now on,” said Vinod Nair, Head of Research at Geojit Financial Services.
Technical analysts were also bracing for the selloff as there were some indications of weakness on the charts.
“There are a few hurdles in the 11,950-12,025 range, which the bulls need to cross in order to set the stage for significant upside. A failure to cross these barriers would keep the index in a consolidation phase. On the downside, the 11,850-11,820 zone will offer immediate support and keep the upside intact in the near term,” said Gaurav Ratnaparkhi, Senior Technical Analyst at Sharekhan.
Mazhar Mohammad of Chartviewindia.in said that if the index slips below 11,837 level, it can attract intraday selling and can make an attempt to bridge the bullish gap formed between the 11,820 and 11,789 levels on October 19.
Among the Sensex constituents, Bajaj Finance was the biggest loser, down 3.55 per cent, followed by TCS, Bajaj Finserv, Reliance Industries, HCL Tech and Tech Mahindra that slipped 1-3 per cent.
Broader markets also plunged, in tandem with their headline peers, but the volatility index saw a spike. Nifty Smallcap was down 0.94 per cent and Nifty Midcap 0.59 per cent. India VIX was up nearly 3 per cent.
In the broader markets space, the biggest drags were Adani Enterprises, Tata Consumer, Apollo Hospitals, Colgate Palmolive, Hindustan Aeronautics, Amber Enterprises, Shakti Pumps and Mindtree that fell up to 7 per cent.