Stock Market Today: The domestic benchmark indices, Sensex and Nifty 50 settled with sharp losses on Wednesday, December 20 as bears gripped D-Street in late afternoon hours. Market observers attributed the crash to profit booking and view the correction as long overdue over stretched valuation of mid- and small-cap stocks
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The 30-share BSE Sensex settled 1,052.10 points or 1.47 per cent lower at 70,385.09, while the Nifty 50 closed 21,106.40, down 1.62 per cent or 346 points today. The Nifty 50 has added about 7 per cent in December, and is heading for its best month since July 2022.
Nifty Midcap 100 index plunged 4.5 per cent from day’s high and Nifty Smallcap 100 index, meanwhile, declined 5 per cent from day’s high to a low of 14,951. IT companies, drawing a significant share of their revenue from the US market, have gained nearly 10 per cent in the last two weeks on expectations of a rate cut in the first half of 2024.
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Forex traders said though the US dollar index below 102 level provided support, the currency was weighed down by foreign fund outflow amid volatile crude oil prices. The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.08 per cent higher at 101.87 on Wednesday.
Here are the top 5 reasons why markets crashed today:
–Global cues weighed on sentiment
Asian shares mostly advanced on Wednesday after Wall Street ticked higher amid hopes that Japan’s moves to keep interest rates easy for investors could augur similar trends in the rest of the world. US futures rose while oil prices were virtually unchanged after two days of gains.
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The US dollar held steady against a basket of peers as traders weighed the chances that the Fed would soon begin cutting interest rates. Fed officials have been pushing back after last week’s Federal Open Market Committee (FOMC) meeting saw three rate cuts penciled in for 2024, sparking a rally in financial markets.
–Profit booking
Nifty 50 posted its worst session in nine months on Wednesday as investors took to profit booking. Analysts said the correction is ‘normal for markets. “The domestic market saw a sharp and abrupt sell-off in the second half, despite the positive trend in global peers.
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This is attributable to profit booking from the recent sharp rally stretching valuations of mid- and small-cap stocks. The recent uptick in crude prices prompted investors to book profits. Most of the sectors witnessed decline, with the least fall in FMCG, banking, and IT,” said Vinod Nair, Head of Research at Geojit Financial Services.
–Broader markets decline
The more domestically focussed small- and mid-caps underperformed the benchmarks, dropping 3.63 per cent and 3.27 per cent, respectively. This was the worst session in three months for small-caps and 12 months for mid-caps.
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“We are unlikely to see the margin of safety in small- and mid-caps in 2024 that we witnessed in 2023, as some pockets are overstretched after the recent rally,” said Sanjeev Hota, vice president and head of research at Sharekhan. Despite the session’s decline, small- and mid-caps have risen 48.06 per cent and 39.72 per cent in 2023 so far, far outperforming the Nifty, which is up 16.82 per cent.
–Rise in COVID cases
As many as 21 cases of COVID-19 sub-variant JN.1 have been detected across the country till now. 19 cases of COVID-19 sub-variant JN.1 have been traced in Goa and one each in Kerala and Maharashtra. Over the past two weeks, 16 deaths related to COVID-19 were recorded, with the many of the deceased having serious comorbidities.
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‘’The easy money sentiment buoyed by a buoyant primary market may have set the stage for a correction. Additionally, tight liquidity among HNIs due to their involvement in IPOs could have contributed to the selling pressure. The recent rise in COVID cases may also be serving as a convenient excuse for some investors to exit,” said Parth Nyati, founder of Tradingo.
–Selling pressure on Nifty Bank index
The Bank Nifty index experienced intense selling pressure, resulting in the formation of a bearish engulfing candle on the daily chart. PSU bank stocks such as Bank of Maharashtra, State Bank of India, and Canara Bank witnessed sharp falls in the range of 2-4 per cent today.
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Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities said, ‘’The immediate resistance for the index is situated at the 47,600-47,700 zone, and a breakthrough above this level could pave the way for further upside, targeting 48000. However, the overall sentiment remains bearish, suggesting a cautious approach with a preference for selling on any upward movements.”
