Sensex and Nifty fell on Wednesday amid concerns over valuation froth in the market, a rise in US bond yields following CPI inflation data in the US and selling pressure in index heavyweights such as Reliance Industries (RIL) and a couple of Tata group names. A bigger dent was, however, seen on retail pockets, as smallcap and midcap indices continued recent selloff, plunging up to 3 per cent on valuation concerns.
In the case of Sensex, oil-to-telecom major Reliance Industries and construction and engineering major Larsen & Toubro contributed 100 points each to the index's 500-point fall. Power stocks NTPC and Power Grid contributed another 150 points to the Sensex fall. Tata Steel, Titan Company and Tata Motors also fell, dragging the index lower. Nifty fell below 20,100 in trade.
Technical chart for Nifty was already hinting at a breakdown ahead.
"Prices are currently adhering to a 'Rising Wedge' pattern, which typically suggests a forthcoming bearish breakdown. While this breakdown has yet to occur, the negative divergence in momentum indicators and the earlier breakdown in the midcap index through a 'Rising Channel' imply potential pre-emptive signs of a downturn in the benchmark index," Sameet Chavan, Head Research, Technical and Derivative at Angel One said ahead of today's session.
It's prudent to maintain a cautious approach, as any minor rebounds likely to be met with selling pressure, Chavan warned.
To be sure, there were 240 stocks on NSE under long-term additional surveillance measures; some 33 other shares were under the exchange's ASM framework on Wednesday. By noon, a total of 869 stocks on BSE had hit their lower circuit limits; 183 stocks had kissed their 52-week lows. The selloff was so broad-based that 3,333 actively traded stocks, out of 3,831 that traded today, were down and only 420 stocks were up.
Investors must focus on the sustained weakness in the broader market, particularly the smallcap segment, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
"The excessive valuations in these segments driven by the irrational exuberance of retail investors has been a concern for many months now. But it has taken the strong message from the regulator SEBI to trigger a correction in the Nifty Smallcap index by 10 per cent from the February 8th peak. Actions from mutual funds also indicate the excessive valuations in the broader market," Vijayakumar said.
To recall, ICICI Pru has joined two other leading funds in stopping lumpsum investments in their mid and smallcap schemes.
"More funds may follow the suit. The net impact of this shift would be more money flowing into largecaps; the largecap outperformance is likely to continue," he said.