The BSE Sensex plunged over 1,800 points, while the NSE Nifty tested the 25,300 level in Thursday's trade, as a surge in crude oil prices due to Iran's missile attack on Israel, and SEBI's tightening of F&O rules, hit retail sentiment hard, paving way for the much-anticipated correction in the stock market. Domestic stocks have been at inflated levels for a while, which increases the odds of a correction, Kotak Institutional Equities said in a note. The driver of a correction could be anything but the outcome will be the same, it warned.
The BSE Sensex stood at 82,434.02, down 1,832.27 points. The NSE Nifty was down 520.05 points, or 2.02 per cent at 25,276.85. "As we have argued before, high conviction at all price points among retail investors with limited investment experience due to high returns over the past 3-4 years has led to the high levels of confidence (greed) among investors of all kinds," Kotak said.
Christopher Wood, global head of equity strategy at Jefferies, this week cut exposure to Indian equities by one percentage point on October 2, even as he remained ‘overweight’ on the Indian markets. Valuations are no more reasonable in India.
Wood, meanwhile, upped weightage on China by two percentage points. This market due to its cheap valuations is on a roll following sops announced by China to stimulate its economy.
Negative news flows seem to be testing investor nerves.
"For long-term investors, this correction offers a good buying opportunity in large-cap stocks, where valuations have become more attractive. We are observing sectoral rotation, with commodity-related stocks expected to perform well in the near term," said Santosh Meena, Head of Research, Swastika Investmart.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the market had ignored the worsening situation in the Middle East. There was a view that the conflict between Israel and Iran is unlikely to impact economies and corporate earnings.
"However, the situation will change if Israel attacks any oil installations in Iran which will trigger a huge spike in crude. If it happens, it can turn out to be more damaging for oil importers like India. Therefore, investors should watch the emerging situation very closely. A partial switch in portfolios to defensives like Pharma and FMCG also can be thought of," Vijayakumar said.