Domestic stocks fell for fourth straight session on Friday, with the BSE Sensex falling nearly 700 points and the NSE Nifty slipping below the psychological mark of 18,000.
The market breadth has been pretty weak in the last couple of sessions, in favour of the bears, and that the fall has not been restricted to large caps. At the time of writing this report, five of every six stocks trading on BSE were in the red today, in line with weakness seen in the last few days.
Concerns over rising Covid cases globally and no immediate relief expected on aggressive Fed rate hikes front are weighing on the global economic outlook. Rich valuations of domestic stocks, by historical standards, and vis-├а-vis other emerging markets, are making the matter worse. To add that are crude oil prices, which are inching upward.
At Friday’s low of 60,146.16, the BSE 30-pack barometer was down 1,660 points in four sessions. BSE-listed stocks lost a total of Rs 4.40 lakh crore in market value today, taking four-day market capitalisation ┬аloss to Rs 11.76 lakh crore to Rs 276.14 lakh crore from Rs 287.90 lakh crore on December 19.
Global outlook concerns
Domestic stocks fell on Friday, tracking an overnight selloff in US stocks as data showing less-than-expected rise in US unemployment claims raised fears of continued Fed rate hikes.
Edward Moya, Senior Market Analyst, The Americas OANDA, said “the Grinch selloff is firmly in place after Micron delivered a gloomy outlook and as better-than-expected US economic data supported the Fed’s case for more ongoing rate increases. Global coordinated central bank tightening has yet to fully impact most of the economic readings for the major economies and that should have investors nervous over тАЛ earnings downgrades and credit risks,” he said.
China Covid cases
Soaring cases of Covid in China and elsewhere, fears of emergence of new variants and choking of supply chains, are making markets further jittery.┬а Prime Minister Narendra Modi on Thursday cautioned against complacency, called for strict vigil and directed that the ongoing surveillance measures, especially at international airports, be strengthened.
“Covid is not over yet,” Modi reiterated at a high-level Covid review meeting and urged people to wear masks in crowded places. Analysts noted that ChinaтАЩs Covid cases and deaths are not significantly rising, but many are questioning the reporting standards there.
Oil prices rise
Moya of OANDA said the oil marketтАЩs biggest wildcard is China and optimism is still strong that the reopening will continue and eventually lead to more demand for crude.
“OPEC+ should have an easy job over the next couple of months as they remain nimble and ready to adapt to whatever the trajectory appears to be for crude demand.┬а WTI crude appears to have a floor at the $70 level and initial resistance at the $80 level, with major resistance at the $83.50 region,” he said in an overnight note.
On Friday,┬а Brent crude rose 88 cents, or 1.1 per cent, to $81.86 a barrel, while US West Texas Intermediate crude was at $78.41 a barrel, up 92 cents, or 1.2 per cent higher.
Rich valuations, low 2023 targets
Amid rich market valuations, many brokerages have Nifty targets that suggests no upside in the year-to-come, weighing on equities outlook.
Considering the 1-year forward outlook of EPS, Kotak Securities’ base case Nifty target for 2023 stands at 18,717, which is 17 times FY25 estimated EPS of Rs 1,101. The target suggests flattish return for the index in the coming year. BoFA Securities expects the 50-pack index to broadly stay in a range of 17,000-20,000 levels during the year, led by debate on two scenarios of a protracted global revival or a soft landing. It sees sharp cuts to Nifty FY24/25 earnings growth at 7 per cent/9 per cent.
Technical weakness
The 18,000 level was a strong support for the Nifty, which it breached in Friday’s trade, triggering further weakness. The index had in the previous session tested a rising trendline drawn from the June 2022 low but managed to closed above it. Gaurav Ratnaparkhi of Sharekhan had suggested that the 18,000 level was crucial. Till that level holds on a closing basis there is scope for some recovery, he said.
“A breach of 18,000 on a closing basis will intensify the selling pressure. On the other hand, near term resistance zone shifts lower to 18,200-18,300,” he said on Thursday.
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