Benchmark indices Sensex and Nifty took a beating on Monday morning, taking their losing run to the third straight session, as strong US economic readings have dashed hopes of a December Fed rate cut. There seems no end to FPI selling and geopolitical tensions. The earnings season too has ended on a disappointing note, leaving little margin of safety despite the recent market fall. Besides, Maharashtra election voting is due this week, which is also keeping investors jittery.
On Monday, Sensex was trading at 77,026.53, down 553.78 points or 0.71 per cent. It tested the 77,000 level earlier in the day. Nifty hit a low of 23,350.40 and was later trading at 23,407.30, down 125.40 points or 0.53 per cent.
The Fed Chair Jerome Powell on Thursday said the US economy's continued strength meant the Fed could take its time with the rate cut discussion. Aditya Bhave, deputy chief US economist at the BofA Global Research believes the US inflation will remain above 2.5 per cent. His team expects the Fed to have just three more cuts -- 25 basis points each in December 2024, March 2025 and June 2025.
A total of 2,486 active stocks decline against 1,421 that were trading higher. A total of 405 shares hit their respective lower circuit limits. Besides, 167 stocks hit their 52-week lows today. IT stocks Wipro, Infosys, TCS and LTIMindtree led the BSE100 decline, falling 3-4 per cent. HDFC AMC, NTPC, Trent, GAIL and Dr Reddy's Labs also fell up to 3 per cent.
Amar Ambani, Executive Director at YES Securities said FIIs have been selling for three reasons. First, to invest in China that was cheaper and the government there was announcing stimulus to revive the economy. This was a tactical shift.
"Our study shows that such repositioning lasts for an average of two months, post which money returns back to the Indian market. However, with the advent of Trump, FIIs are now moving to US treasury for better risk-adjusted yields and US equities. This is the second reason," he said.
Besides, there is the concern around trade tariffs and its impact on emerging market currencies. If Trump were to impose a 60 per cent tariff on China and other EMs, then that could make China devalue its currency.
"Obviously, there will be a ripple effect on other emerging markets like India as well. FIIs would not want to be invested in a depreciating currency. We think the Nifty will settle between 22,200 to 23,000 on a closing basis. Value buying from domestic investors will emerge, followed by FII inflows," Ambani said.
Vijayakumar, Chief Investment Strategist at Geojit Financial Services said even as Nifty has corrected 10.4 per cent from the peak, there are no signs of a sustained recovery in the market.
Relentless FII selling, earnings downgrades for majority of stocks for FY25, and the consequences of the Trump trade are weighing on the market, he said.
"Investors should exercise caution at this stage and wait for clarity on the direction of the market. With the dollar index strong at 106.6 and the 10-year US bond yield at 4.44 per cent, there is no room for a quick reversal of FII flows. Investors can focus on areas of strength like digital companies and high quality banking stocks. Largecaps like RIL and Eicher are showing resilience," he said.
Post Q2 results, the Nifty EPS estimate for FY25 was cut by 1.4 per cent to Rs 1,057, largely owing to ONGC, BPCL, Reliance Industries, and Coal India. Ex-Commodities, Nifty FY25E earnings saw no downgrades.
FY26E EPS has also been trimmed 2.2 per cent to Rs 1,241 from Rs 1,269, led by downgrades in ONGC, BPCL, Reliance Industries, and Tata Motors.
On Maharashtra elections, Nomura said political parties in the fray are not only fighting their rival coalition parties, but are also looking to reassert their authority among partners in their own coalition. Ahead of the elections, the BSE Sensex was trading at 77,095.72 on Monday, down 484.59 points or 0.62 per cent. Nifty was down 120.20 points or 0.51 per cent at 23,412.50.
"However, the BJP-led ruling coalition seems to have the edge because of the populist measures announced in the run-up to the elections," Nomura India said.