Indian equity indices decline as company valuations trip on disappointing earnings

Mumbai: Indian equity indices declined on Monday for the third straight session as disappointing first-quarter earnings cast doubt on the market's elevated valuations. The slide in the broader market was sharper, with investors trimming their risky bets amid heightening uncertainty.

The NSE Nifty fell 0.6% or 156 points to finish at 24,680. The BSE Sensex moved 0.7% or 572.07 points lower at 80,891. The Nifty Mid-cap 150 and Small-cap 250 indices dropped 0.9% and 1.3% respectively.

In the past week, the benchmark index shed 1.6% while the mid-cap and small-cap indices shed 3.1% and 4.1% each.


"The market has been factoring in higher growth expectations into mid-cap and small-cap stocks," said Siddarth Bhamre, Head of Research, Asit C Mehta Intermediates. "So if these companies report lower growth numbers in the earnings, the selloff is that much more pronounced because the higher growth led these stocks to command a higher valuation multiple."

'Sell on Rise' Market
Bhamre said that expectations of 25-30% growth from these companies imply a valuation of 40-50 times, which is significantly higher than the rest of the market.

The Nifty Realty Index tumbled 4.1% while the metal index closed 1.2% lower. Bank Nifty fell 0.8% while the private bank and PSU Bank indices dropped 1.7% and 1.2% respectively.

The Volatility Index or VIX-the market's fear gauge-gained 7% to 12.1 on Monday, indicating traders expect higher risks in the near term.

Out of the 4299 stocks traded on the BSE, 2951 declined, while 1,200 advanced, underscoring the weakness in the broader market

"Despite opening higher, the mid and smallcap segment saw a fall today driven by bearish sentiment as the benchmark Nifty remained below key level of 24,800," said Vipin Kumar, AVP Equity Research & PMS (Derivatives & Technical Analyst), Globe Capital Market

Foreign portfolio investors (FPIs) sold shares worth a net of Rs 6,082.5 crore on Monday. Their domestic counterparts bought shares worth Rs 6,764.6 crore. In July, overseas investors divested Rs 27,822.9 crore.

"The probability of disappointment is higher in the market rather than making money in the current set-up," said Bhamre. "We are not gung-ho on the market at least until December this year as the potential for decent upside is unlikely."

Kumar said that 24,000-24,400 is a key support level with some value buying likely to emerge at 24,000 levels, but markets are likely to be in a short-term downtrend.

"A bounce back is likely towards 24,900-25,000 levels in the near term as the markets are oversold in the short term. However, it is expected to be a selling opportunity as we are in a 'sell on rise' market," said Kumar.