While some experts said investors were spooked by concerns over escalation of the Middle East crisis, a delay in rate cuts by the US, and an amendment to the India-Mauritius tax treaty, others pooh-poohed these concerns and said the correction was expected and healthy.
The sectors that saw the highest profit booking were banking, IT, infra, oil and gas, and pharma.
The Sensex corrected by 1.06% to 74,244.90 while the Nifty fell by 1.03% to 22,519.4 as FPIs sold shares worth a provisional ₹8,027 crore. The fall would have been sharper had domestic institutional investors (DIIs) not net-purchased shares worth a provisional ₹6,341.53 crore.
In comparison, broader markets led by the Nifty Smallcap 250 and the Nifty Midcap 150 indices outperformed, correcting by two-fifths to half a per cent.
HDFC Bank (-1.13%), L&T (-1.97%), Reliance Industries (-0.84%), Sun Pharma (-3.99%) and ITC (-1.57%) alone contributed to over two-fifths of Nifty’s 234.40-point fall.
“It seems that geopolitical tensions in the Middle East are having a significant impact on the global economy,” said Shrikant Chouhan, head-equity research, Kotak Securities. “The surge in oil prices due to escalating tensions and Iran’s vow to retaliate against a suspected Israeli airstrike is a major concern for potential disruptions to oil supply from the region.”
Brent crude oil active futures’ contract on Atlanta-based InterContinental Exchange was up 1.09% at $90.71 at the time of writing as fears of a reprisal by Iran on Israel rose following a strike by the latter on the Iranian consulate in Damascus on 1 April that killed seven Iranian revolutionary guards. A retaliatory strike is being anticipated over the weekend.
A jump in crude could hurt domestic user companies’ operating margins with India importing around 85% of its annual oil needs. In addition, prospects of an early rate cut by the US Fed dimmed after unemployment claims fell by a sharper-than-expected 211,000 for the week ended 6 April against Reuters economists’ poll of 215,000 filing for jobless claims.
A delay in US rate cuts could delay RBI’s move to cut rates back home, which is expected in the second half of the current fiscal, obviating lower borrowing costs for India Inc.
Meanwhile, safe-haven asset gold soared to a fresh all time high of $2,400.67 an ounce at the time of writing.
Another factor that contributed to Friday’s fall is an amendment to the India-Mauritius Double Taxation Avoidance Agreement of 2016 to plug misuse of tax concessions by entities investing in Indian shares from the island nation. This would deny foreign entities exemption from capital gains arising from sale of Indian shares if the purpose of location is solely to avail of the tax benefits.
“Since the treaty amendment has to do with tax, it could have an impact on FPI investments into India. We will have to wait and see,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP.
However, a few constituents attributed Friday’s dip to overbought markets.
“These were merely excuses used by investors to book profits after a sharp run-up in the markets to three straight highs on 8-10 April,” said Gaurang Shah, senior VP at Geojit Financial Services. “It’s a healthy correction that we anticipated earlier this week, and the bullish trend will continue to prevail.”
Shah expects the market to trade in a 22,250-22,750 range in the short term.
Traders cut long positions in the Bank Nifty active futures contract, whose open interest – outstanding positions – fell 4.67% to 136,249 contracts as its price declined 0.64%. A fall in open interest accompanied by a price correction signifies long liquidation, or profit booking.
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Published: 12 Apr 2024, 10:35 PM IST