Nifty logs biggest one-day fall in a year — is it a good time to buy more?

Domestic stock market investors were taken by surprise in trade Wednesday as the bull run on Dalal Street came to a halt with Nifty50 registering its biggest losses in a single session in over a year.

The S&P BSE Sensex fell over 1,000 points, barely managing to stay above 72,000 at open. The Nifty 50, too, was under pressure as it retreated well beyond 21,700. The market capitalisation of all listed companies on BSE also declined by ₹1.91 lakh crore to ₹373.04 lakh crore.

HDFC Bank was the top loser following a mixed set of earnings in the third quarter. The stock slide over 6% in early trade as the lender's deterioration in the credit deposit ratio and liquidity coverage ratio spooked the street. The bank said that growth will be a priority in 2024, and promised to focus on growing its deposit franchise and the retail segment.

 

Globally, the bearish sentiment prevailed after the US Federal Reserve tanked investors hopes of a sooner easy monetary policy scenario. Fed Governor Christopher Waller said that while the central bank is expected to cut rates in 2024, it may take its time during the process as US is still at a 'striking distance' of the Fed's 2% inflation goal.

Some analysts see this correction as healthy, suggesting investors to buy on every declining opportunity.

"Even though the economy is doing well and corporate earnings are good, all these positives are in the price and the valuations are elevated warranting a correction. The mid and small cap space is highly overvalued and is sustaining at high levels only by the high liquidity in the system," said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Vijayakumar said the market will turn slightly weak in the near-term due to some negative global and domestic cues. "The global negativity will come from the rising bond yields in the US (the 10-year yield is at 4.04 %) responding to concerns that the sharp rate cuts expected from the Fed this year may not materialise. Now indications are that the Fed is unlikely to cut in March and the total cuts in 2024 may not be five or six that the market had partly discounted. This will be a drag on global equity markets."

The analyst expected some profit booking and recommended investors to consider moving the money to fixed income for safety.

Nifty broke the five session's winning streak on January 16 by falling 65 points to close at 22,032, weighed down mainly by realty and IT stocks. Deepak Jasani of HDFC Securities expects 21,779 to act as a strong support for the Nifty. Short term resistance for the Nifty is seen in the zone of 22,200-22,250.

Prashanth Tapse, Senior VP Research and Research Analyst at Mehta Equities said the fall was much awaited after a continuous rally. "Nifty sees a make-or-break support at 21,501 mark a close below this would bring more pressure on index towards 21,150 in coming week. Volatility would continue with good and bad news. FIIs are turning to net buyers day-by-day while uncertainty about the timing and speed of Federal Reserve rate cuts. A recover and close above 22,126 mark would be hurdle to watch."

After today's gap down it is imperative to watch how Nifty can close, whether it can cross the 21,850 resistance once again or not, failing to do so, there could be a near term support for Nifty in the range of 21,600 to 21,500, said Soni Patnaik of JM Financial Services.

"But what is important is that even with today's gap down, there are no fresh shots in Nifty futures rather there's just more of open interest unwinding. It is indicating that Nifty may consolidate but then there is limited downside as of now," Patnaik said.

21650–21500 is a key demand zone for the Nifty, said Santosh Meena, Head of Research at Swastika Investmart. "Until buy-on-dip texture is continued, while below 21500, we can expect short-term weakness towards the 21000–20800 zone."

"Bank Nifty is dragged by private banks, especially HDFC Bank, where 46500–46250 is a key demand zone where we can expect a bounce back. While below 47250, there will be a risk of further weakness. On the upside, 47500–48,000 will be resistance areas," he said.