Volatility indicator also edged higher, reflecting nervousness on the Street. Valuations have also become stretched now but analysts expect better December quarter results which will likely cool it off a bit. Losses on Tuesday were checked by continued flow of foreign funds.
“Frenzied buying by FIIs is supporting the market even at high levels of valuations. An unhealthy trend in recent days is the rally in low-grade stocks. Many new retail investors are recklessly buying these ‘cats & dogs’ without any consideration for fundamentals. This is a risky game fraught with the potential for huge losses,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
“There is safety in quality large-caps in IT, pharma, private sector banking, consumer goods and select autos. Quality stocks will bounce back even if there is a sharp correction. But low-grade stocks will turn illiquid resulting in huge losses. Retail investors should exercise caution.”
Factors driving markets
- Georgia elections: The Georgia runoff elections will decide which party controls the US Senate. A win by Democrats would make it easier for President-elect Joe Biden to push policies such as rewriting the tax code to boosting stimulus.
- US Fed to be accommodative policy: The US Federal Reserve‘s minutes from the last policy meeting are due on Wednesday. Monetary policy will stay accommodative for “quite some time”, Cleveland Fed President Loretta Mester said on Monday.
- Lockdown in UK: British Prime Minister Boris Johnson on Monday ordered England into a new national lockdown to contain a surge in COVID-19 cases.
- Economic activity in fast lane: US manufacturing activity picked up at its briskest pace in more than six years in December, extending a recovery in the factory sector.
How are bluechips doing
After opening in the red, benchmark indices recovered a bit but still traded lower. At 9.50 am, BSE flagship Sensex was up 103 points or 0.21 per cent to 48,074. NSE benchmark Nifty followed and slipped 41 points or 0.29 per cent to 14,091.
“We are top heavy at this point in time. 14,150 is the current resistance level and if we can get past that 14,200-14,250 is a possibility. However, it is recommended that we maintain a cautious stance and trade with lighter quantities on the buy side with strict stops. The risk reward is currently skewed and we should wait for dips or corrections and then evaluate the markets. Accumulation of long positions should ideally happen on corrections,” said Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments.
In the 50-share pack Nifty, Axis Bank was the biggest gainer, up 2.29 per cent. HDFC, HDFC Life Insurance, TCS, Hero Motocorp, Eicher Motors, HUL and Wipro were among other gainers.
Tata Motors was the top loser in the pack, down 2.54 per cent. ONGC, Hindalco, M&M, JSW Steel, NTOC, Coal India, Indian Oil, ICICI Bank and Bharat Petroleum were other losers in the pack.
Broader market indices traded with cuts trading in line with their headline peers in morning trade. Nifty Smallcap dipped 0.10 per cent while Nifty Midcap slipped 0.20 per cent. Broadest index on NSE, Nifty 500 was down 0.20 per cent.
Mahanagar Gas, L&T Tech Services, Mphasis, Rail Vikas Nigam, Tata Elxsi and Cyient, were among major gainers from the space while Alok Industries, Rail Industries, Sterlite Tech, Chola Finance and Apollo Tyres were under selling pressure.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.34 per cent, pulling back from a record high hit in the previous session. Australian stocks fell 0.44 per cent. Chinese shares erased early losses and rose 0.26 per cent.
Japanese shares lost 0.25 per cent after a media report that the government will curb business hours in Tokyo and surrounding cities from Thursday. US S&P 500 stock futures edged up 0.24 per cent.