The Nifty 50 had a record first half of September during which it scaled the mark of 20,000 and even moved higher, making an intraday high of 20,222 on September 15. Since then, the market has been on a downward spiral, registering its worst week in seven months as of closing on Friday.
Multiple factors have triggered this correction - from high crude prices to the resurgent US Dollar, to even the underperformance of heavyweight banks. It is not as if these factors were not present during the first half of September, but a stellar rally in the broader markets pushed the Nifty 50 higher as well. Once the index got past 20,000, a couple of profit booking sessions took place in the midcap and smallcap space, which rubbed off on the index as well. Here's a look at some of these factors:
Crude Oil Prices | Oil prices globally are back above the $90 per barrel mark, their highest level in 10 months. Saudi Arabia, the world's biggest oil producer, and Russia, among the largest, have extended their voluntary output cuts of a combined 1.3 million barrels per day till the end of 2023. But another potential rate hike from the US Federal Reserve has raised a question of demand sustaining. Oil posted minor weekly losses on Friday over these demand concerns. But these higher prices do not bode well for a net oil importer like India, as a $1 per barrel increase in crude oil prices may lead to a $2 billion annual increase in the country's Current Account Deficit, according to India Ratings and Research. These prices are not headling lower anytime soon as analysts are projecting price targets in the range of $95 - $105 per barrel by the end of the year.
US Dollar | A higher US dollar means trouble for global markets in general, not just India. The US Dollar index has been hovering around the 104-106 mark for the last few weeks. The greenback completed its first golden cross on the charts since July 2021 on Friday, meaning more potential pain for stocks. A golden cross means when the 50-day moving average crosses the 200-day moving average on the higher side. The market ignored a resurgent US Dollar in the first half of the month, but when the correction happened, this became one of the triggers. A higher US Dollar would mean a weaker rupee, a larger import bill and a greater strain on government finances. However, the news of India's inclusion in JPMorgan's Emerging Bond Market Index starting June 2024 may cushion some pain on the currency, as evident from Friday's session.
Profit Booking | If the market has rallied nearly 3,500 points from the lows of the year, it is only apt that investors would take some money of the table. The above-mentioned headwinds just acted as a catalyst for the same. Many experts on the street suggested taking some money off the table, particularly within the midcaps and smallcaps space, as valuations appeared stretched compared to the largecaps. Harsha Upadhyaya of Kotak Mahindra AMC said that he has booked profits recently in select financial and auto names as he continues to remain cautious and prefer largecaps over the broader market.
Underperforming Banks | The trigger point came last week with HDFC Bank. India's largest private lender at an analyst meet cited rising corporate NPAs at HDFC Ltd., the merged entity, which led to downgrades and cuts in estimates across the board. HDFC Bank's shares lost over Rs 1 lakh crore in market capitalisation last week and declined nearly 8 percent, which was the worst week it had in over three years. It contributed to nearly a quarter of the Nifty 50's drop and more than half of the Nifty Bank's fall. The decline in HDFC Bank also rubbed off on another private lender, ICICI Bank, another index heavyweight, which also had its worst week in nearly eight months. The underperformance of two large banks put further pressure on the market.
FII Selling | After strong inflows during the June quarter, Foreign Portfolio Investors are also choosing to take some money off the table. Barring a couple of sessions in September due to block deals, FIIs have mostly been net sellers in the cash market, even during the first half of the month when the market made record highs. Laurence Balanco of CLSA also advised booking profits in the mid and smallcap space, expecting a correction of 2,000 - 4,000 points in the Nifty Midcap index.