Sensex logs biggest fall in eight months: 5 factors that spooked market

NEW DELHI: The rally on Dalal Street was cut short by a massive plunge in shares of ITC on Tuesday, as domestic equity market logged its biggest single-day loss in nearly eight months.

The BSE Sensex closed 363.79 points down at 31,710.99, while NSE Nifty index closed 88.80 points down at 9,827.15.

With a fall of over 12 per cent, ITC was the top loser in the Nifty index. Shares of ITC plunged after the GST Council on Monday raised the cess on cigarettes to take away an estimated Rs 5,000 crore annual ‘windfall’ manufacturers could have reaped from lower GST rates, Finance Minister Arun Jaitley said.

However, cigarette prices will not change as a result of the increased cess, which became effective from last night.

In the Nifty index, 22 stocks ended the day in red with ITC falling the most, followed by GAIL (down 2.11 per cent), RIL (down 2.01 per cent), Aurobindo Pharma (down 1.70 per cent).

On the other hand, Eicher Motors, Asian Paints, Sun Pharma, HCL Tech and Axis Bank gained between 1.10 per cent and 1.99 per cent.

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Here are the top factors that spooked benchmark indices today:

ITC rattles benchmark indices: A sharp 14 per cent plunge in shares of ITC, its biggest intraday fall in over 20 years, never expected of this sort, jolted benchmark indices. One could judge from the fact that ITC alone contributed about over 400-point negative contribution to Sensex. The stock wiped off Rs 45,000 crore in market value and hit its biggest intraday fall since 1992 after GST Council raised the cess on cigarettes to take away an estimated Rs 5,000 crore annual ‘windfall’ manufacturers could have reaped from lower GST rates. The fall on Sensex was seen even as 27 of 31 Sensex stocks were trading in the green. Buying in shares of other index heavyweight HDFC, Bharti Airtel TCS and Infosys could do little but to restrict Sensex losses below 300 points as the session progressed.

IT lacks fireworks: Earnings announced so far have been mixed with IT major TCS falling short of expectations and Infosys numbers just meeting the Street expectations. Given the fact that IT sector alone accounts for a third of Sensex weightage, a lack of support from IT stocks led to fall in key indices. This was evident given the broader indices such as BSE500 were down just 0.30 per cent. Earnings

Advance-decline ratio: Advance decline ratio was falling for quite some time. Data showed BSE100 was trading half a per cent lower by 930 am, with overall 2 of every three shares trading on BSE were in the red. The index made a small bull candle on the day chart, which resembled Doji pattern, suggesting indecisive among market participants. “The indices appear to be concealing the real picture with positive closes,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in said on Monday.

Valuations: Bofa-ML in a note pointed out that the premium MSCI India’s enjoys over peer emerging markets, despite average earnings growth, is driven by consumer-facing stocks of financials and staples.

There is also a significant ‘faith’ foreign investors seem to have in the Indian consumption story, it noted.
“Indian stocks have a ‘visibility premium’ rather than a ‘growth premium’. We mesure this as the number of yeats of high ROE built into consumer stock prices. Will the recent rally this is also now at cyclical highs. There is little room for further upside. While the market is susceptible to reversal of the global tide, stay cautious in near term,” it warned last week.

Retail frenzy speaks of forth: High retail participation is often a signal of impending correction. They are the investors who represent “the last bear on the Street” as they are hesitant and join party/rally only at the last stage. Huge market returns probably attract them to stocks. But by the time they make decision, stocks prices get past their valuations too fast.

“You are not in early part of the bull market, but somewhere in the second half of the cycle. When you see messages floating around of cab drivers, Ola drivers doing day trading, I think that gives you early warning signal that it is becoming easy to make money and the weaker hands will come into this market,” Market Expert Ajay Bagga said.