What's really weighing on market sentiment suddenly?

Stock indices ended down 1 per cent on Monday after hitting record highs during the session owing to the selloff in index heavyweights such as Reliance Industries, HDFC Bank and Tata Consultancy Services following their December quarter results.

The Sensex ended down 416.46 points, or 0.99 per cent, at 41,528.91 and the Nifty ended down 127.80 points, or 0.98 per cent, at 12,224.55. Earlier in the day, Sensex hit a record high of 42,273.87 and the Nifty touched an all-time high of 12,389.05 during the day. Kotak Mahindra Bank ended down 4.7 per cent at Rs 1,618, as the worst performer on the Sensex following its quarterly result. Reliance Industries, HDFC Bank and TCS, which released quarterly numbers on Friday, ended down 2-3 per cent. The India VIX jumped 9 per cent to 15.4. Foreign portfolio investors bought shares worth Rs 6 crore on Monday while DIIs sold shares worth Rs 1,420 crore.

“Earnings of some large companies were slightly below expectations. Valuations are not cheap for any of these companies so a miss on expectations can lead to over-reaction to the results,” said Nitin Bhasin, head of research-institutional equities at Ambit Capital.


All the three companies have outperformed the Sensex in the last one year. HDFC Bank’s shares are up nearly 17 per cent in the last one year, Kotak Mahindra Bank has gained 28 per cent and Reliance Industries has gained 24 per cent. The Sensex has gained 13.5 per cent during the same period.

“Most of these companies are over-bought. Banking sector itself is over-bought,” said Piyush Garg, chief investment officer at ICICI Securities. “Market may remain subdued going into the Budget as it has run up over the last few months. The Nifty will not go below 12,000 but stay in the 12,000-12,200 range.”

Since the announcement of the corporate tax rate cut on September 20, the Sensex has gained 15 per cent.

The market had also got a boost from the US Federal Reserve towards the end of the year wherein it maintained status quo on key policy rates and signaled constancy through 2020.

The first phase of the US-China trade deal was also announced, removing a key overhang on the market.

All this is despite slowing economic growth, geopolitical tensions and concerns over fiscal deficit targets being breached. Market participants are expecting a boost on the tax front in the upcoming Budget.

Antique Stock Broking said the Budget may be tilted towards stimulating growth by extending the existing tax rebate to tax payers having an income up to Rs 10 lakh and the government may also reduce or abolish longterm capital gains tax. “Expectation is running high from the upcoming Union Budget to provide stimulus to revive economy. Any disappointment could lead to a 5-10 per cent correction in overall market,” said Antique.