After a stellar rally that drove the BSE Sensex past 50,000 levels last week, markets have been on a downward trajectory that continued on Thursday. The Sensex declined 536 points or 1.1 per cent to close at 46,874.36 points. The wider NSE Nifty 50 also ended down 150 points or 1.1 per cent at 13,817.55.
A key reason the benchmark index had rallied past 50,000 was huge inflows from foreign institutional investors. So far in January, they have pumped in over Rs 20,000 crore in India’s equity markets. But, as the Budget day draws near, investors seem to have become cautious. On Wednesday, FIIs were net sellers in stocks to the tune of Rs 1,688 crore. Domestic mutual funds have already been net sellers for the last few months, as redemptions in equity funds had risen.
A sell-off in global markets is also weighing on investor sentiments. The Dow Jones Industrial Average, for instance, slumped 2 per cent on Wednesday. In Asia, the Hang Seng plunged 2.7 per cent on Thursday, while the Nikkei Stock Average was down 1.5 per cent. Across major markets, continued worries around the COVID-19 pandemic, slow rollout of vaccines seems to have led investors to book profits after a stellar rally.
“Market turned cautious after the unidirectional upside of the last 10 months due to ambiguity ahead of the budget and profit booking in the global market due to over-enthusiasm,” said Vinod Nair, head of research at Geojit Financial Services.
Even as the US Federal Reserve has continued to maintain a supportive monetary policy, huge speculative trading in some stocks in the US has raised risk parameters.
In the US markets, a massive retail investor-driven rally in shares of GameStop (GME), a videogame retailer, and movie theatre operator AMC Entertainment has caught a couple of hedge funds off guard. The funds had bet against GameStop expecting prices would fall. However, the stock rose by over 700 per cent in a week as retail investors stockpiled it, forcing the hedge funds to close their short positions at a loss, which has weighed on broader markets.
“The GameStop rally is very unique in the regulated market, where a group of Reddit market enthusiasts have rallied the stock enthusiastically, much to the chagrin of professional portfolio managers," said Swastik Nigam, CEO and founder of Winvesta.
The liquidity pumped into the system will find a portion channelled into speculative trading behaviour, Nigam added, citing the rally in GameStop and few other shares.
In the domestic market, blue-chip stocks like Hindustan Unilever, Maruti Suzuki, HDFC Bank and Kotak Mahindra Bank were among the major losers on Thursday. While HUL tumbled 3.7 per cent, Maruti fell 3.6 per cent and HDFC Bank was down 2.8 per cent.
All eyes will be now on the Budget announcement on February 1. While the wider hope is that finance minister Nirmala Sitharaman will spend big to lift the economy hit by COVID-19 pandemic, experts have said that given the revenue shortfall and high fiscal deficit, there may not be huge room to raise spending and the government may have to set its priorities.
