Market falls steepest in 7 months

Our Bureau | | | Updated on: Nov 22, 2021
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RIL calling off Aramco deal, Paytm IPO’s poor show, repeal of farm laws hit sentiment

Reliance Industries scrapping the proposed stake-sale to Saudi Aramco, the Paytm free fall, and the withdrawal of the three farm Bills sent equity market indices hurtling on Monday to their biggest single-day fall since April.

Sensex plummeted 1,170 points, or 1.96 per cent, to close at 58,465. The Nifty index sank by 348 points, or 1.96 per cent, to end the day at 17,416. This is the lowest level the indices have touched in nearly two months.


The share price of RIL — a key indicator of India’s stock market direction due to its heavy weight in Sensex and Nifty — fell 4.42 per cent to close at ₹2,363 after RIL on Friday said it had dropped the plan to sell 20 per cent stake to Aramco and pulled back a plan to hive off of its oil-to-chemicals business. The stock is down 14 per cent from its lifetime high in October.

“Markets seem highly oversold now. A combination of key technical indicators shows a situation where sentiment has turned extremely negative and hence is due for a complete reversal to the upside.

“The 10-day open interest Put-Call (derivatives options) ratio is at a low last seen in 2016 after the demonetisation. In 2016, post-demonetisation, markets rose sharply for many months,” said Rohit Srivastava, chief strategist, Indiacharts.

According to him, only 9 per cent of the stocks in the derivatives segment are displaying a bullish momentum. He says that when such a reading falls below 10 per cent, the indices stop falling in the near term and you can call it a bottom.

Also, the hourly relative strength index (RSI) of the Nifty at 17 is at the lowest level since March 2020.

Paytm’s collateral damage

The Paytm share crashed by over 45 per cent from its IPO price in just two days of its listing. On Monday, the scrip touched a low of ₹1,271 against the IPO price of ₹2,150.

This had a collateral damage on the stock markets. Most high networth traders borrow hundreds of crores to invest in IPOs in the hope of making a killing from listing gains. This money is borrowed from non-banking finance companies, which just take 2-5 per cent margin to extend the funds or accept other shares as margin.

On Thursday, when Paytm fell nearly 30 per cent below its listing price, NBFCs started selling the shares placed as margin by HNI traders to cover the margin shortfall. HNI traders, too, were offloading shares to cover their losses and pay the NBFCs.

This Catch-22 situation put huge pressure on the markets, experts said. Paytm was India’s largest IPO at ₹18,300 crore.

The government’s withdrawal of the farm Bills also affected the sentiment as investors feared that it could hurt the momentum of reforms in the near future.

Question mark on reforms

S Ranganathan, Head of Research at LKP Securities, said, “The repeal of the agriculture laws had an impact on the PSU stocks, while the RIL’s O2C plan not going through left a 4.5 per cent cut on Reliance. Even as IPO investors come to terms with the reality, the inflationary impact on demand across several sectors continues to worry the Street.”

Analysts now believe that markets are oversold and that there is low possibility of any major fall. Amit Gupta, Fund Manager – PMS, ICICI Securities, said: “With the recent correction, markets have entered into a consolidation phase where stock-specific volatility can be utilised to form the equity portfolios. The stretched valuation segments are witnessing profit booking and money is flowing into value segments where earnings have started to grow after prolonged stagnation.”

Published on November 23, 2021

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