Domestic equity markets saw a severe sell-off during the trading session on Wednesday on the back of global and domestic reasons. The headline indices gave up initial gains and selling pressure intensified as the session progressed. All the sectors and segments were marred during the session. The 30-share pack BSE Sensex gyrated in the range of 1,500 points. However, the BSE's barometer finally settled 906.07 points, or 1.23 per cent lower at 72,761.89. NSE's Nifty50 index plunged more than 540 points from day's hight, but ended the session at 21,981.75, falling 353.95 points, or 1.58 per cent for the day. Fear gauge India VIX spiked about 6 per cent to 14.43-mark. The BSE smallcap index and midcap indices dropped up to 5 per cent each. Investor's lost a total of Rs 13.57 lakh crore from their kitty as the total market capitalization of all the BSE-listed companies tanked to Rs 371.69 lakh crore, compared to Rs 385.64 lakh crore in the previous trading session. Markets erased early gains and slipped into the negative zone with frenzied selling towards the end dragging benchmark Nifty below the 22,000 mark, said Prashanth Tapse, Senior VP (Research), Mehta Equities, said suggesting investors to wait before taking any major longish bets. "There have been concerns over the rising valuations of mid & small-rung stocks for a while, and with the regulator too highlighting these concerns, traders preferred to trim their exposure which resulted in a massive correction across the board," he said. Here are the key factors that dented the market sentiments on Wednesday:US Inflation numbers The US consumer price index (CPI) increased solidly in February, beating forecasts and suggesting some stickiness in inflation, which pushed the bond yields higher. However, some experts still expect a Federal Reserve interest rate cut in June. However, core figures also topped estimates. The persistent US inflation rate has cast doubt on the Fed's ability to implement imminent rate cuts, said Vinod Nair, Head of Research, Geojit Financial Services. "However, the easing trend in global commodity prices may prompt central banks to consider rate cuts in the latter half of 2024, which could be positive for equity," he said.Selling in the index heavyweights Sell-off in the index heavyweights like Reliance Industries, Larsen & Toubro and select Tata Group names dented the market sentiments. Only Reliance Industries contributed about 260 points in the 906 point cut in the BSE Sensex. NTPC's contribution was around 100 points for the day.Weakness in the broader markets Broader markets extended their weakness for another trading session as second rung counters continued to bleed. The BSE midcap index crashed 4.2 per cent on Wednesday, while the BSE smallcap index crashed 5.11 per cent for the day. A total of 1,086 stocks hit their respective lower circuits for the day. There has been concern over the inflated valuations in the small-cap & mid-cap space, which are being caused by the irrational optimism of individual investors, said Pravesh Gour, Senior Technical Analyst at Swastika Investmart. "However, it took the regulator Sebi's forceful message to bring about a correction. Continued selling and mutual fund activity point to worse suffering ahead."Crude oil prices rise Crude Oil rose on Wednesday, supported by signs of strong global demand including from top consumer the United States while hopes that the Federal Reserve might start cutting rates soon also buoyed sentiment despite somewhat sticky US inflation. In an indication of healthy demand, US crude oil and fuel inventories fell last week.Technical Factors It seems like largecaps have joined the correction in smallcaps and midcaps which have been under severe selling pressure in the last few days, said Rahul Sharma, Head Technical and Derivatives Research, JM Financial Services. "Nifty has a derivatives support at 22,000 so any sustenance below the same should be taken as an indication of caution for longs, said The only silver lining today has been in select private banks and fmcg stocks which have held their ground amidst a market-wide selloff," he said.India's inflation India’s headline inflation came in at 5.09 per cent for February 2024 as against 5.10 per cent in January 2024, but continued to remain near the upper band of the MPC’s tolerance level. The food price index continued to be elevated while fuel and Core-CPI moderated. The coming months may witness moderation in food prices backed by pickup in rabi sowing besides normal monsoon showers. Fuel prices may continue to remain benign due to moderation in global demand besides slash in LPG and CNG prices domestically, said Shraddha Umarji, Economist - Institutional Research at Prabhudas Lilladher.
"The Core inflation will be assisted by easing global commodity prices and elevated borrowing costs eroding demand in the near term. Indian Inc’s stable growth prospects coupled with easing inflationary concerns will be a guiding factor for the MPC decision at the forthcoming meeting," she added.
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