Nifty slumps 10% from peak, Bank Nifty weekly contracts bid adieu

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Benchmark indices fell for the fifth straight session on Wednesday, entering correction territory, amid a sharp surge in domestic inflation, firm dollar and rising US bond yields. Wednesday also marked the end of of the popular trading instrument – Bank Nifty weekly contracts.

October retail inflation soared to a 14-month high of 6.2 per cent, reducing expectations of a rate cut by the RBI in the upcoming policy meet. Weak Q2 results and sustained foreign outflows also weighed on sentiment.

The Nifty ended 324 points lower at 23,559, a 10 per cent drop from the all-time high of 26,277 it touched in late September. The Sensex plunged 984 points or 1.25 per cent to close at 77,690. From peak, Sensex slumped 9.5 per cent. Mid and small-cap indices fell between 2.6-3 per cent. The BSE Midcap slumped 11.11 per cent from September peak while SmallCap plunged 9.6 per cent,

Bottom fishing

Cash market volumes on the NSE were higher, suggesting bottom fishing by local investors.

Traders unwinded positions in banking stocks as Wednesday marked the end of weekly Bank Nifty derivatives contracts. The Securities and Exchange Board of India last month directed exchanges to have only one weekly series from November 20. NSE has decided to keep Nifty weekly options and winding down Nifty Midcap Select and Nifty Financial Services..

Chief laggards

Realty, Metals, Auto and Capital Goods were the chief laggards among sectors, with metal stocks feeling the pinch of disappointing stimulus measures announced in China.

Vinod Nair, Head of Research, Geojit Financial Services, said: “Relentless selling by FPIs amid weak corporate earnings and a sharp surge in domestic inflation to a 14-month high have impacted investor sentiment, dashing hopes for a near-term rate cut by the RBI. Markets are jittery about future US policy actions, including trade-related implications for the world economy, which is reflected in the strengthening US dollar and rising yields.”

Since late September, foreign investors have withdrawn about $14 billion from Indian equities.

“Corporate earnings have also failed to reassure markets, with several companies reporting their weakest quarterly performances in over four years,” said Vikram Kasat, Head, Advisory, PL Capital.

Most Asian markets fell on Wednesday, with Kospi down 2.7 per cent. European markets traded flat. Traders feared US President-elect Donald Trump’s policies could reignite inflation globally and/or result in stagflation.

Nagaraj Shetti, Senior Technical Research Analyst, HDFC Securities, said: “A long bear candle was formed on the daily chart and the crucial lower support of 200-day EMA was tested around 23550 levels on Wednesday. If the market decisively slides below 23500 levels, then one may expect the next lower trajectory of around 23000 levels in the near term.”