Nifty, Sensex to open on flat note as investors turn cautious

KS Badri Narayanan Chennai | Updated on October 20, 2021

Broader markets may come under pressure on institutions on sell mode

Domestic benchmarks are likely to open on a flat note on Wednesday despite positive global markets. Financial performance of India Inc in Q2 so far has been better than street expectations but the valuation of stocks look stretched, say analysts, and expect some meaningful correction.

Strong selling by institutions, especially domestic, to keep the market under check is expected. On Tuesday, DIIs sold shares over ₹2,500 crore while FPIs over ₹500 crore. The market witnessed a sharp sell-off after hitting new milestones and we are seeing the first sign of distribution in the market as the Nifty and Sensex ended with the mild cut.

But the real pain was in the broader market where the Nifty Midcap index ended with a cut of more than 2 per cent. The fall was led by the top performers of the last few days like IRCTC and Tata Power.

After reaching astronomical heights, broader markets will continue to face pressure from domestic institutions, which prefer to book profits and hold cash to re-enter if the stocks are available at a reasonable valuation post correction.

The biggest issue in the market is that the current rally is not backed by institutional investors and there is a kind of euphoria in the market, especially in F&O stocks where you can easily find daily one or more stocks with more than 10 per cent gain, said Santosh Meena, Swastika Investmart.

“The market is not charitable enough to make you easy money for a long time. Therefore, there is a risk of a short-term correction in the market to take out weak hands and that correction could be sharp, especially in individual stocks,” he added.

SGX Nifty at 18,452 indicates a flat opening for Nifty futures, which on Tuesday closed at 18,432. Most equities across the Asia-Pacific region are up between 0.2 per cent and 0.8 per cent on Wednesday. However, China and Korea markets are down by about 0.25 per cent. Overnight, the US stocks closed 0.5–0.7 per cent higher.

Investors should be cautious at these levels after the movement seen on Tuesday, especially in mid-cap and small cap counters. “Investors are advised to keep a strict stop-loss to their positions,” said Rahul Sharma, Co-Founder, Equity99.

“The long term outlook of the market is bullish where the intermediate corrections will be the part of this journey. I think any meaningful correction will be healthy for the market,” said Meena.

Published on October 20, 2021

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