Sensex falls 300 points, Nifty below 23,700 as market extends losses. How long will the downtrend continue?

The Indian stock market extended losses on Tuesday, with Sensex and Nifty trading lower as elevated crude oil prices, Fed rate hike worries, booming IPO market and other factors continue to contribute to the slow grind down in the market.

Sensex dropped around 320 points to 75,809 while Nifty 50 fell 82 points to 23,697 during today's session. Broader markets however continued to remain mixed, with Nifty Midcap 100 in the red and Nifty Smallcap 100 in the green.

M&M, Tech Mahindra, TCS, HCL Technologies, Bharti Airtel, Trent, Axis Bank, Sun Pharma, Infosys and other stocks fell around 1% each to lead losses on Sensex, while BEL and Eternal shares gained nearly 1% each.

Among the sectors, Nifty IT fell 0.7% as IT stocks extended losses on Fed rate hike worries, while Nifty Metal index rose 0.4%. The overall market breadth however turned slightly positive, with NSE seeing 1,345 advances against 1,327 declines, while 123 stocks remained unchanged.

Why is the stock market falling today?

The market is now in the fifth week of a slow but steady downtrend, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted. He added that elevated crude prices, selling in IT stocks, fears of a Fed rate hike this month and a booming IPO market which is sucking lots of money have contributed to this slow grind down in the market. “Since the macro construct which contributed to this downtrend persists, it is possible that the downtrend may continue in the near-term. But this trend is opening up opportunities for investors in large-caps which continue to remain weak despite improving fundamentals,” the analyst said.

A major factor contributing to the weakness of the large-caps despite their attractive valuations is that bulk of the steady monthly SIP inflows are going to the mid-and small-cap segments despite their elevated valuations, Vijayakumar pointed out, adding that a reversion to mean is overdue in the mid-and small-cap segments. “This can facilitate a rally in fundamentally sound large-caps. The timing of this transition is hard to predict. But this is likely by this month-end when the mega IPOs of NSE and Jio are completed and refunds from the IPOs come back to investors. Instead of trying to time the market, investors can think about changing the weightage of portfolios towards large-caps where the risk-reward is favourable,” he concluded.

Technical view on Nifty

Despite Nifty slipping to the lowest point since late July, the consolidation in the second half of yesterday gives hope towards recovery attempts, said Anand James, Chief Market Strategist at Geojit Investments. He however will need a confirmation from a break beyond 23,860 to signal recovery attempts, while downside marker is placed at 23,720.

Nifty’s systematic slippage over the last few days has rendered the trend vulnerable, exposing supports at 23,570 and 23,260, the analyst said while explaining the technical charts.

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