New Delhi: The stock market closed on a negative note on Friday, with the Sensex plunging 738.81 points to settle at 80,604.65 and the Nifty falling 275.25 points to close at 24,530.90.
Among the Nifty companies, only four saw advances while 46 registered declines, marking a broad-based sell-off. Despite the negative close, the market has shown resilience over the past seven weeks, with both the Sensex and Nifty posting gains on a cumulative basis.
This trend underscores a steady bullish sentiment, even amidst short-term corrections. In the Nifty index, Infosys, ITC, Asian Paints, and Britannia emerged as the top gainers. Infosys shares closed 1.8 per cent higher at Rs 1789, with an intra-day high of Rs 1844. The IT sector, in general, is poised for a potential rerating, driven by positive forecasts from industry leaders like Infosys and TCS, especially in the financial services segment.
On the flip side, Tata Steel, JSW Steel, BPCL, Hindalco, and ONGC were among the top losers, contributing to the market's decline. Ajay Bagga, market and banking expert, said, "Global cues were negative for the last two days. Indian markets fell due to a combination of weak global cues and profit-taking ahead of the Union Budget 2024 to be presented on Tuesday, July 23rd. All sectors were in the red with the market breadth negative. This is normal consolidation around all-time high levels and the markets will wait for the Union Budget details before taking fresh positions. We expect this to continue till Tuesday."
He added, "As Fed rate cut in September FOMC meeting looks imminent, there is a sector rotation happening, with high growth, momentum stocks being sold and underperforming sectors being bought. However, given the rate cuts will be shallow and slow, EMs will not benefit from flows being routed from the US to EMs in a hurry. That might take a year more at the least."
The current market trend highlights a significant underperformance of overvalued smaller stocks in contrast to the outperformance of reasonably valued large-cap stocks. This indicates a sustainable rally without the risk of overheating. The IT sector's potential rerating could further boost market sentiment, although overall market breadth remains negative with all sectors in the red.
Friday's downturn can be attributed to a combination of weak global cues and profit-taking ahead of the Union Budget 2024, set to be presented on Tuesday, July 23rd. Over the last two days, global signals have been predominantly negative, influencing Indian markets to follow suit. While major stock exchanges like the BSE and NSE remained unaffected by global technical issues linked to Microsoft Azure, several trading platforms faced disruptions.
These issues impacted market accessibility for users across various brokerage firms, adding to the day's volatility. Shrikant Chouhan, Head Equity Research, Kotak Securities, "For the market participants, budget would a key event in the upcoming week. Stock specific action will continue over the next few weeks in view of Q1FY25 result season. Further, the investors would look for cues to get clarity with respect to possible decision from the FOMC meeting scheduled next month."
This current phase is seen as a normal consolidation around all-time high levels, with the markets expected to remain cautious until the Union Budget details are unveiled. Analysts anticipate continued cautious trading until Tuesday, as investors await key fiscal measures and economic policies. Additionally, there is a sector rotation occurring in anticipation of an imminent Fed rate cut in the September FOMC meeting.
High-growth, momentum stocks are being sold, while underperforming sectors are seeing increased buying interest. However, given that the expected rate cuts will be shallow and slow, emerging markets (EMs) are not expected to see immediate benefits from capital flows redirected from the US. This shift might take at least another year to materialize fully.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "A distinct trend in the market now is the underperformance of the overvalued broader market and the outperformance of the fairly valued largecap space. This augurs well for the continuation of the rally without the market getting overheated. The downtrend in the overvalued PSU segments like defence and railways may persist."
While the Indian stock market experienced a significant decline on Friday, the overall trend over the past seven weeks remains positive. Investors are advised to stay vigilant and await the upcoming Union Budget for clearer market direction.
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