Due to the escalation in geopolitical tension and pressured by high valuations, stocks fell like ninepins on Monday. Intrusion by Chinese troops in Eastern Ladakh gave enough ammunition to stock market bears to push domestic indices sharply lower that wiping off all morning gains. The financial analysts said that a general profit booking also weighed on the indices. During military and diplomatic engagements at the ongoing standoff in Eastern Ladakh, Col Aman Anand, PRO (Army), informed that PLA troops violated the previous consensus arrived and carried out provocative military movements to change the status quo on the nights of August 29-30.
The news hit the stock market sentiments as investors dumped stocks in mass. The BSE flagship Sensex plunged at 1,615 points from its day’s high. In the end, the index closed down 839 points for the day to 38,628. Its broader peek Nifty fell 260 points to 11,387 and broader markets also suffered badly.
Nifty Smallcap plunged 4.46 per cent while Nifty Midcap slumped 3.2 per cent. India VIX, which measures fear and volatility in the market, jumped 22 per cent to 22.33 as traders changed their positions in the market. Siddhartha Khemka, Head of Research (Retail) at Motilal Oswal said that in the morning market and global cues were positive, so this geopolitical development looks like to be the major reason that has spooked the markets. But there could be more reasons that will only be known in the evening.
All sectoral indices were trading with heavy cuts. Nifty Media was the biggest loser because it down at 5.66 per cent. Nifty Pharma, Nifty PSU Bank and Nifty Realty tumbled about 3% each. The banking indices were also trading sharply lower from their morning highs. Now, metals along with PSU banks may see further profit-taking. Broader markets, especially the small-cap index has also tested critical resistance hence they are seeing profit booking.
Anyhow, some analysts believe the stock market could continue its path towards record highs, despite certain hiccups. Khemka said that they have a positive view on Nifty. Global cues are positive, FII flows have been strong, and the opening of the economy has taken up pretty well with companies reporting a good increase in volume. Plus VIX has cooled off significantly on a week-on-week basis, which helps the overall bullish view with buy on dips strategy with a target at 12,000. The analysts at ICICI Securities expect Nifty to form a new high of 12,600 in the current financial year.
