Bears ran riot on Indian markets on Monday as investors resorted to major selling, causing key benchmarks to plunge due to disappointment over IPO pricing, the suspension of the Reliance-Saudi Aramco transaction, and relentless selling by foreign investors.
The BSE index, the Sensex, fell 1,100 points (1.96%) to land at 58,465, while the Nifty finished 2% lower at 17,416. The BSE Midcap and Smallcap indices, meanwhile, fell 2.5% and 2.9% respectively, in the broader markets.
The return of coronavirus outbreaks in Europe and other countries also weighed on global market sentiment, and analysts said the repeal of the Modi government’s contentious agricultural laws influenced the market’s downtrend as well.
“Sentiments had been weakening for the past few trading sessions with the indices closing below their 50-day moving average,” Santosh Meena, head of research at Swastika Investmart, a Mumbai-based stock broker firm, said.
“The F&O (futures and options) expiry is coming up on Thursday as well. Generally, an expiry week mimics the market momentum in India, and since markets had entered a bear phase since the beginning of this month, this bear momentum created an added extension to the weakness.”
Heavy Foreign Selling
“Besides, pressure from heavy selling in Reliance, also added to the market woes, while continuous selling by FIIs (Foreign Institutional Investors) since November and the recent withdrawal of the farm laws contributed in pulling the markets down,” Meena added.
Shares of Reliance Industries dropped 4% to Rs 2,368.20 on Monday’s intra-day trade after the company called off its deal with global oil giant Saudi Aramco for a 20% stake acquisition by the Saudi firm in the oil-to-chemicals (O2C) business.
“This correction in Reliance’s shares single-handily pulled the Sensex down by over 75 points,” Meena said.
However, analysts added that a revival of coronavirus outbreaks in Europe and elsewhere has been weighing down the global market mood, while the failure of Paytm – the largest IPO – last week was also a major source of disappointment.
“The markets started losing steam from the beginning of November when Foreign institutional investors (FIIs), rattled by a resurging Covid crisis in Europe, started retreating from emerging markets on fear that India would be soon impacted by that resurgence,” Chandan Taparia, vice-president of research at Mumbai-based brokerage firm Motilal Oswal, said.
“That apart, the Paytm flop has flushed out the investable funds of local investors, leaving them in no mood to invest in stocks.”
Paytm slumps further
Paytm lost more than a quarter of its value on its first day of trading last week, marking one of the worst-ever debuts by a major technology company and casting a chill over other IPOs in the pipeline.
The stock sank by another 13.74% in trade on Monday to close at Rs 1,362. Foreign broking firm Macquarie has a target of Rs 1,200 for the share – a steep 44% discount to issue price of Rs 2,150.
The sell-off has rubbed off on recent listings, as nearly half the stocks of companies that listed this month have dipped below their respective issue price, according to reports.
Analysts say Indian markets have entered a consolidation phase as a result of this correction, one that will lead to stock-specific volatility in the next few weeks.
“Investors will book profit at every level of perceived stretched valuation, and the short-term trend is bearish,” Taparia said. “With no significant support visible in the near-term, we expect another 5% to 10% correction in the next five to seven trading sessions.”
• Indrajit Basu
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