After back to back 10 straight days of gains on the indices, it was a brutal sell off in Thursday's session with Sensex losing close to 1400 points from the day's high. Here are likely reasos which pulled back markets today.
1. Moody's remarks on Indian economy:
The global rating agency says that the recent stimulus amounting to 0.2% of GDP shall provide only limited support to growth. It acknowledges fiscal prudence but takes note of limited budgetary firepower to support economy, contracting sharply.
2. Heavyweights fall:
RIL, HDFC Bank, Infosys are all down in trade on October 15, 2020 which has weighed on the overall market sentiments. RIL despite raking in a fresh investment from KKR is down over 1 percent in trade today. Also, financials have been weak in trade today.
3.IT and Banking stocks lost momentum
IT index which was seen bucking the trend at some point also gave up today with Nifty IT down close to 3 percent while writing this report, with major drag coming in from stocks Infosys, TCS, HCL Tech, InfoEdge. Notably, during the early deal Infosys after price target upgrades and gains in its net profit for the September ended quarter hit a fresh high today.
Banking stocks with Nifty Bank declining over 3% was also the clear loser with drag from bluechip names such as HDFC Bank, ICICI Bank. There is a concern that if SC stands pat on or disallows banks to classify loan accounts as NPA, banks may be in for a huge chaos.
4. Global indices:
As the hopes around announcement of fresh US stimulus to combat the coronavirus fall-out were suppressed, European indices both CAC and DAX were down 1.96% and 2.58%, respectively. Also, UK stock index was down 2%.
5. High PE valuations were not justified:
Given the historically high PE ratio on both the headline indices which have been unjustified given the Covid 19 led pandemic uncertainty, the correction was largely expected. As per a report Sensex and Nifty as on October 12, 2020 commanded a PE of 29.6 and 34.8, respectively.
6. Coronavirus second wave in Europe
Also, fresh restrictions and lockdowns being imposed in Europe batting the second wave of coronavirus is another factor making the markets globally nervous. As per the Reuters report, Europe is now adding fresh 1 lakh cases on a daily basis.