Bloodbath On D-Street: Market Sees Profit Booking After Record Highs; Sensex & Nifty Plunge 1% Each

The Indian stock market experienced a significant downturn on Wednesday, with both the Sensex and Nifty 50 indices dropping by over a percent. The Sensex fell more than 900 points, breaking below the 79,600 mark, while the Nifty 50 slipped over 200 points to dip below 24,200. This decline came after both indices reached record highs the previous day, prompting a wave of profit booking among investors.

The Sensex hit an intraday low of 79,435.76, a decline of 915.88 points, while the Nifty 50 touched a low of 24,141.80, down 291 points. The benchmark Nifty 50 had reached a record high of 24,461.05 in the opening trade before reversing its gains. The Bank Nifty index also traded nearly 1% lower, dropping 491 points to a low of 52,077.90.

The downturn was not confined to the major indices. All sectoral indices were trading in the red, with Nifty Auto, Nifty PSU Bank, Nifty IT, and Nifty Oil & Gas indices experiencing losses. Selling pressure intensified in the broader markets as well, with the Nifty Smallcap 100 and the Nifty Midcap 100 indices falling over 1.5% each.

Several factors contributed to the market's downturn:
Mixed Global Cues
Global markets presented mixed signals despite overnight gains on Wall Street following dovish comments from US Federal Reserve Chairman Jerome Powell. Investors were particularly focused on inflation data from Japan and China. China's consumer price inflation rose by 0.2% in June year-over-year, while producer prices dropped by 0.8%, in line with expectations. Japan's wholesale inflation accelerated by 2.9% in June from the previous year.

Profit Booking
After the benchmarks witnessed a strong rally, investors opted for profit booking. The Sensex had reached a record high of 80,481.36 in early morning trade, and the Nifty 50 had touched a record high of 24,461.05. These inflated valuations prompted investors to lock in profits from overvalued stocks, contributing to the market's decline.

Rate Cut Uncertainty
Uncertainty over potential interest rate cuts by the US Federal Reserve this year also weighed on the stock market. US Fed Chair Jerome Powell, in his testimony before Congress, struck a cautious tone regarding the timing of rate cuts. Powell emphasized that a rate cut would not be appropriate until the Fed gains "greater confidence" that inflation is moving towards the 2% target. His comments highlighted the Fed's awareness of "two-sided risks" and the ongoing need to focus on inflation, which remains above the central bank's target.

Domestic Inflation Concerns
Investor sentiment was further dampened by concerns over rising domestic inflation. India's Consumer Price Index (CPI)-based inflation for June is expected to increase. Analysts predict that CPI inflation could edge up to 5% in June from 4.75% in May, driven primarily by rising food prices, especially high vegetable prices. Core CPI inflation is seen as bottoming out but is likely to remain muted at around 3.2% in June.

Q1 Results Expectations
The upcoming Q1 results of India Inc are anticipated to be lacklustre, which also contributed to the market's decline. The net profit of the Nifty 50 is estimated to decrease sequentially. According to Kotak Institutional Equities, the net profits of the BSE-30 index may increase by 8.1% year-over-year (YoY) but decline by 8.4% quarter-over-quarter (QoQ). For the Nifty 50 index, Kotak expects the profit after tax (PAT) to be flat YoY but decline by 10.7% QoQ.

The brokerage firm also provided estimates for earnings per share (EPS) of the Sensex and Nifty 50 indices. For FY25, the EPS of the Sensex index is projected at Rs 3,521, and for FY26, it is expected to reach Rs 4,063. The EPS of the Nifty 50 is estimated at Rs 1,093 for FY25 and Rs 1,249 for FY26.

The current market volatility is a result of a combination of profit booking at higher levels, global economic uncertainties, and domestic inflation concerns. Investors are advised to remain cautious and consider these factors when making investment decisions. The mixed global cues and cautious stance of the US Federal Reserve on rate cuts suggest that the market may continue to experience fluctuations in the near term.

*Inputs from Mint*