After a long record run, signs of investor fatigue were palpable in stock markets on Tuesday, amid profit bookings, a lack of new impetus and rising tensions in the Red Sea.
Both Sensex and Nifty50 ended in the red, with stocks from the auto, private banking, capital goods, IT and real estate sectors selling off. Their respective sectoral indices saw a decline of more than 1 percent on Tuesday.
The Sensex ended the session at 71,892, down 379 points or 0.53 percent. The Nifty 50 ended at 21,666, down 76 points or 0.35 percent. For both indices, Tuesday's decline was the sharpest since December 20.
Now, the Sensex is 0.9 percent off the all-time intraday high it touched on Monday and the Nifty50 is 0.7 percent off. While the two indices ended in the red during the last trading session of 2023, they closed with modest gains on January 1.
ICICI Bank, which fell 1.9 per cent, contributed the most to the decline in Sensex, followed by Larsen and Toubro, which fell 2.4 per cent. Kotak Mahindra Bank fell 2.4 percent and contributed to the decline.
“The decline in the number of private lenders could be due to normal sector rotation or profit taking. Auto stocks fell as monthly sales were weak. Daily gains in index stocks are slowing due to investor fatigue after last year's stellar gains. We need new triggers for the next step forward,” said Deepak Jasani, head of retail research at HDFC Securities.
Reliance Industries, which rose 0.87 percent, Sun Pharma, which rose 2.9 percent, and Bajaj Finance, which rose 1.9 percent, provided some comfort and helped prevent further losses.
In 2023, the Sensex gained 18.7 percent and the Nifty50 rose 20 percent, with most of the gains coming in the last two months of the year. In November and December, the Sensex gained 13 percent and the Nifty 14 percent.
The revival came thanks to the easing of the US Federal Reserve. Investors have been betting on rate cuts since March since the Fed signaled at its December meeting that it expects to cut rates at a stronger pace than previously expected. The latest state election results have raised expectations for policy and regime continuity, and strong macroeconomic data have further excited investors.
Now that investor fatigue seemed to be setting in, analysts say the rising tensions in the Red Sea acted as an additional brake. Brent crude rose 2 percent to trade at $78.56 per barrel at 7:00 PM IST. Oil prices rose after Iran sent a warship to the Red Sea in response to the US Navy's destruction of three Houthi boats.
Market experts warned that if left unchecked, tensions in the Red Sea could ultimately push up commodity prices and pose a challenge to major central banks' rate-cutting plans.
Higher oil prices will also hurt India, which imports more than 70 percent of its crude oil needs. News reports indicate that the Red Sea handles about 12 percent of world trade.
“Markets have done well, but tensions in the Red Sea are now causing investors to worry. There could be some concern about some additional measures from the RBI regarding lending to AIFs,” said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
In peer markets, Chinese stocks fell sharply after weak manufacturing and home sales data. Chinese factory activity fell to its lowest level in six months in December; the decline in home sales accelerated.
Domestic institutional investors were net sellers to the tune of Rs 1,959 crore, preliminary data from stock exchanges revealed. Foreign portfolio investors (FPIs) were net buyers worth Rs 1,602 crore.
Market breadth was neutral: 1,906 stocks rose and 1,904 fell. More than two-thirds of Sensex shares fell.
Going forward, Wednesday's US Federal Open Market Committee (FOMC) minutes, the China Services PMI and other macroeconomic data will determine the market trajectory.
First print: January 2, 2024 | 11:49 PM IST