Monday Blues In Indian Market: Sensex Declines Over 650 Points, Nifty Below 21,900

The BSE Sensex on May 13 declined 656.52 points to 72,007, while the NSE Nifty also dropped 174.15 points to below 21,900. Tata Motors, JSW Steel, Tata Steel, SBI and NTPC were the biggest laggards dragging the domestic equities market.

The rupee also opened on a flat note at 83.51 against US dollar.

Among the Sensex shares, 27 out of 30 shares were trading in the red. Only Sun Pharma, Asian Paints and Kotak Mahindra Bank were in the green.

V K Vijayakumar, chief investment strategist at Geojit Financial Services, said, “There is confusion regarding the reasons for the aggressive FPI selling in May. There are media reports attributing the FPI selling to possible setbacks to the NDA/BJP in the elections. It is important to understand that the FPI selling is due to a change in FPI stance from ‘sell China, buy India’ earlier to ‘sell India, buy China’ now. This change in stance has been caused by the recent outperformance of China (Shanghai Composite up by 3.96% and Hang Seng up by 10.93% last one month) and underperformance of India ( Nifty down by 2.06% last one month). This is likely to be a near-term trend triggered by the cheap valuations of Chinese stocks and the relative high valuations of India.”

He added that it is important to understand that India’s long-term prospects are much better than China’s. Results of the autos sector are good. The sector is in a cyclical uptrend.

Technical View

Nifty fell below 22,000 raising concerns of a drop to 21,500. There’s a slim chance of a short-term bounce to 22,400 early this week based on technical indicators, but only if Nifty stays above 21,777 and surpasses 22,095.

Anand James, chief market strategist at Geojit Financial Services, said

“The break of 22000 in Nifty did bring in jitters, and the recovery swing on Friday failed to push much above our upside marker of 22095. Seen in isolation this suggests that the 21500 trajectory that we had set out with on Friday continues to be in play.”

He, however, added that the formation of an inside bar, especially at the Bollinger band extremity, gives us a whiff of hope that a relief rally aiming 22223-22400 is likely to unfold in the early part of this week. Similar set up in oscillators as well as directional moving indicators were seen in late April, when a vertical recovery from 21777 unfolded. A direct fall below 21777 or inability to clear 22095 will negate upside hopes.