50K mark now a little more distant for overbrought market

50K mark now a little more distant for overbrought market

Mumbai: Indian stocks extended losses to the second straight session on Monday as worries about markets being overbought overshadowed optimism around India’s vaccination drive and continued flows into the country’s equities. Brokers said various domestic investors were cutting exposures after the Sensex came close to the 50,000-mark.

The BSE Sensex ended down 470.4 points or 1 per cent at 48,564.27 and Nifty ended down 152.4 points or 1.1 per cent to close at 14,281.30. The Sensex and Nifty have fallen 2.15 per cent in the past two days. Foreign portfolio investors (FPIs) bought shares worth 650.6 crore while domestic institutional investors (DIIs) sold shares worth Rs 42.5 crore. So far in January, FPIs have bought nearly Rs 19,500 crore worth of Indian shares.

“Markets have seen almost a one-sided rally and some correction after that is healthy. With this rally, we were trading at higher than average valuations, stocks had gone to unreasonable levels in some sectors,” said Vinit Sambre, head of equities at DSP Investment Managers. “Most of the good news has been priced in be it US election, stimulus and globally there is an inflationary concern, which can hurt the profitability of companies,” said Sambre.

Indian stock indices have rallied more than 90 per cent from their March 2020 lows amid expectation of economic recovery, strong liquidity coming emerging markets’ way and the arrival of the coronavirus vaccine. At 22.3 times, the Nifty’s one-year forward price to earnings is at a 45 per cent premium to its 15-year average, almost at an all-time high.

“The reversal in trend will depend on the dollar index movement and foreign inflows. The market is overbought for the last month and it will remain overbought till foreign flows are strong,” said Abhilash Pagaria, senior manager, Edelweiss Alternative Research.“Upside is likely to be restricted at 14,500 and support is near 14,170.”

The volatility index — a measure of traders’ perception of near-term market risks — continued to inch higher, ending up 1.6 per cent at 24.4.

Nagaraj Shetti, technical research analyst at HDFC Securities said a move below 14,125 could confirm the reversal pattern and that is likely to trigger more weakness in the short term, which could open immediate downside target of 13,700 for the coming weeks, said Shetti.

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