Here’s why Sensex slumped nearly 700 pts in Friday’s intra-day trade

Domestic equity markets succumbed to late-hour selling on Friday, especially, in the IT pocket as investors turned cautious ahead of the weekend.

The BSE Sensex slumped 682 points to the day’s low of 61,889, while the NSE Nifty shed 304 points to 18,410 in intra-day trade.

However, the indices later pared some losses and closed 389 points and 118 points lower, respectively.

“Nifty registered day’s low at 18410, which happens to be the upward sloping trend line support on the daily chart. A break below 18,410 could result in more selling in the index; hence, this level should be kept as a stop loss for long positions. On the higher side 18,600-18,650 level is likely to act as an immediate resistance,” said Devarsh Vakil, deputy head of retail research, HDFC Securities.

Analysts say the correction is nothing to be worried about as it is typical of markets to consolidate after reaching new record highs.

“Prior to touching new highs early this month, the markets were already moving sideways for about a month between 18,000-18,400 levels. Friday’s fall also remains a result of some profit booking and consolidation before the indices eventually move on to make new highs. This is a good opportunity, in fact, for investors to enter specific stocks they may have shortlisted before,” said Gaurang Shah, senior vice president at Geojit Financial Services.

Here’s a detailed breakdown on reasons behind Friday’s sudden decline:

IT stocks meltdown: Shares of IT companies tumbled on Friday led by HCL Tech, which scaled down its FY23 constant currency revenue guidance to the lower end of its previous guidance. Pressured in the IT pocket deepened after Credit Suisse warned of valuation-led correction in the sector amid US macro headwinds. Read here

Profit taking ahead of Fed meet, inflation data: Investors seemed to book profits on Friday after the Sensex and Nifty indices made new highs of 63,583 and 18,887 levels, respectively, on December 1. The Street is looking to be cautious ahead of the release of inflation numbers both in India and the US next week. The US Fed’s rate decision on Wednesday, December 14, will coincide with India’s release of CPI data.

This week, the Reserve Bank of India also highlighted ‘sticky core inflation’ as a cause for concern. The core retail inflation in October came at 6.5 per cent from 6.3 per cent the prior month even as the overall rate of price rise eased from 7.41 per cent to 6.77 per cent.

Cautionary bells from the US: For the most part of the week, global investors remained on the edge as several top US bankers cautioned against an inevitable recession in 2023. JPMorgan Chase & Co chief Jamie Dimon told CNBC the elevated consumer spending of 2022 will not last much longer as inflation and rate hikes continue to erode consumer spending power.

As per Reuters, Bank of America CEO Brian Moynihan warned that the bank’s research shows negative growth in the first part of 2023, albeit mild. With economic growth slowing down, Goldman Sachs is witnessing extremely cautious tones from its clients, said CEO David Solomon.