Sensex, Nifty retreat sharply as euphoria over easing tensions fades
Summary
On Tuesday, the BSE Sensex closed 1.55% or 1,282 points down at 81,148.22, while the Nifty 50 index closed 1.39% or 346 points down at 24,578.35. The Nifty 50 lost around 37% of the gains it made on Monday, and the Sensex, 41%.
Indian benchmark stock indices took a sharp U-turn on Tuesday after they surged to four-year highs a day earlier on the back of easing India-Pakistan tensions and a temporary truce in the US-China trade war. The bout of profit-taking, which market experts said was on expected lines, coincided with the weekly expiry of Sensex option contracts that expire every Tuesday.
On Tuesday, the BSE Sensex closed 1.55% or 1,282 points down at 81,148.22, while the Nifty 50 index closed 1.39% or 346 points down at 24,578.35. The Nifty 50 lost around 37% of the gains it made on Monday, and the Sensex, 41%. The BSE’s market capitalization fell by ₹1.2 trillion to touch ₹431.27 trillion, per data from the exchange.
Looking ahead, the outlook based on options data on Nifty, whose weekly options expire on Thursday, hints at a range of 24,320-24,900 over the next two days with an immediate bias to the downside, said Rajesh Palviya, head of technical research at Axis Securities.
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“After the previous day’s rally, there was a slight pullback, possibly reflecting investors’ exuberance in yesterday’s move," said Alok Agarwal, head of quant and fund manager at Alchemy Capital Management. “It appears to be a normalization after yesterday’s big move."
To be sure, broader indices stood strong amongst the pullback. The Nifty Smallcap 250 index closed 0.84% up and the Nifty Midcap 150 index closed 0.24% up.
As per provisional data from BSE, on Tuesday, foreign institutional investors (FIIs) net sold shares worth ₹476 crore. However, in the derivative segment, they net sold shares worth ₹6,668 crore in Nifty index futures. As for domestic institutional investors (DIIs), they net bought shares worth ₹4,273 crore.
“There were very high tariffs that were anticipated, which eventually reduced and now things will go back to how earnings pan out," said George Thomas, equity fund manager at Quantum Mutual Fund. He added that with most major issues behind us, volatility is likely to decrease going forward.
On Monday, the US and China agreed to a 90-day period of lower tariffs on a wide range of goods except for steel and automobiles. As part of the deal, the US will reduce its tariffs on Chinese products from 145% to 30%, while China will lower its duties on American imports from 125% to 10%.
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Deepak Shenoy, founder of CapitalMind PMS, said the market faces headwinds from ongoing US tariffs and geopolitical issues, which could resurface and impact global trade. At the same time, he added that there are tailwinds for the Indian economy, as it remains steady with the RBI’s recent interest rate cuts and the upcoming tax reductions set to take effect from April.
What happened on Tuesday
Tuesday saw the highest single-day fall since 7 April, when the Nifty 50 and Sensex had fallen 3.24% and 2.95%, respectively, on the back of a looming trade war between the US and China. Stocks like Infosys, which had risen 7.91% on Monday and HDFC Bank (3.57%), dragged the benchmarks down on Tuesday, falling 3.58% and 1.65%, respectively.
The other stocks that brought the indices down were Reliance Industries, Bharti Airtel and ICICI Bank. Together, these five stocks accounted for almost three-fifths of the Sensex’s 1,282 point fall.
To be sure, both the indices have staged an impressive recovery from multi-month lows on 7 April to date as foreign portfolio investors (FPIs) resumed buying after six and a half months of selling. Nifty at Tuesday’s closing gained 13% from the low of 21,743.65 on 7 April. And the Sensex recovered almost 14% over the same period.
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Further, both the indices closed above their 200-day moving averages—24,047 for Nifty and 79,117 for Sensex—indicating that these could act as strong support for both the indices in the short term, unless the ceasefire between India and Pakistan breaks down.
Among the sectoral indices, the Nifty IT index fell the most (2.42%), dragged down by Infosys and TCS (which fell 3.63% and 2.83%, respectively, on NSE). After Nifty IT, Nifty FMCG fell the most (1.34%) on Tuesday.
Asian indices showed a mixed performance. Hong Kong’s Hang Seng index closed 1.87% down, while the Nikkei 225 (Japan) and SSE Composite (China) closed 1.43% and 0.17% up, respectively.
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