Why is the market falling today? Indian equity benchmarks fell sharply in late morning trading on Friday after registering an uptick in the previous session. The BSE Sensex fell nearly 1,100 points due to heightened tension on Dalal Street. The India VIX anxiety gauge index surged up to 13 percent on the presentation of the Union budget and the outcome of the US Fed meeting next week.
Investors in Dalal Street became poorer by Rs 8.1 lakh crore as the total market capitalization of BSE-listed shares fell to Rs 268,344 lakh crore. Domestic indices fell today, dragged along by banks, financials and energy stocks offsetting waning concerns about a US recession.
Bank stocks were among the hardest hit, as Nifty Bank lost more than 1,300 points, or 3.3 percent. PSU banking stocks, which have outperformed in recent months, were among the hardest hit.
Here are the main factors dragging down the Indian stock market
Bank shares fall
PSU banking stocks were the hardest hit, with India’s largest lender, SBI, losing more than 5 percent. Other top losers were Bank of Baroda, PNB and ICICI Bank.
FI sale
Foreign institutional investors or FIIs have been on a bargain hunt this month, bringing total stock outflows to Rs 16,766 crore so far in January, NSDL data shows. Last Wednesday alone, the sale of the FII stood at Rs 2,394 crore. Analysts say FIIs are redistributing funds from India to relatively cheaper markets like China.
Markets nervous about the budget
Market participants hope that the government will continue its infrastructure spending and announce measures to attract more money from the private sector.
If Street’s expectations are not met, the market could fall. The FY24 budget deficit figure will also be closely monitored. Foreign broker Morgan Stanley expects the budget deficit to reach 5.9 percent of GDP in FY24, up from 6.4 percent for FY23.
“The budget deficit needs to be consolidated. The starting point of 6.4 percent is already so high that markets won’t like it if it slides any further,” said Upasana Chachra, Chief India Economist at Morgan Stanley.
UN lowers India growth forecast for 2023
The United Nations has cut India’s GDP growth forecast for calendar year 2023 to 5.8 percent, citing the effect of tighter monetary policy and weak global demand.
“Growth in India is expected to remain strong at 5.8 percent, albeit slightly lower than the estimated 6.4 percent in 2022, as higher interest rates and a global slowdown weigh on investment and exports,” said the World Economic Situation report. and Prospects 2023 from the UN. , published Jan. 25, said.
Fueled outcome fears
The US economy grew at an annual rate of 2.9 percent from October to December, which was better than expected. Economists had forecast growth of 2.3 percent. This indicates that the US Federal Reserve could remain aggressive for an extended period of time.
“Recent data suggests that the growth rate could slow sharply in[the current quarter]as the effects of restrictive monetary policy take effect,” Rubeela Farooqi, chief US economist at High-Frequency Economics, wrote in a research report. From the Fed’s perspective, a desired slowdown in the economy will be welcome news.”
The next Fed decision is scheduled for February 1, 2023, to coincide with the Indian budget.
Handy technique
Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “Banknifty has turned in its 100-DMA of 41,500, triggering multiple stop losses, adding further selling pressure. The market follows last year’s pattern as in 2022, the Nifty saw a doji candle (indicating range-bound movement) in the second and third weeks of January, followed by a sharp drop in the last week of January. However, that sell-off was a buying opportunity, as we then saw a sharp post-budget rally. So, according to the template, we can expect a post-budget rally in the market.
Technically, 40,000 is a psychological support level for BankNifty, while 39,500 is a critical support level. If Banknifty manages to bounce back from the 40,000-39,500 zone, then we can expect a bounce back. However, Banknifty needs to move above 42,000 for a meaningful recovery.”
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