Sensex, Nifty fall as IT stocks drag markets; crude near $97

At 9:36 am, the BSE Sensex was down 170.94 points, or 0.22%, at 76,344.49. The index opened at 76,446.05 against Friday's close of 76,515.43. The Nifty50 was down 52.85 points, or 0.22%, at 23,844.85.

In Short

• Benchmark indices fall, extending four-week losing streak
• Middle East tensions keep crude near $97, pressuring inflation
• 14 of 16 sectors traded lower, Adani Ports among gainers

Benchmark indices started Monday's session lower, extending a four-week losing streak as investors grappled with a difficult mix of global and domestic pressures.

Rising tensions in the Middle East, crude oil prices nearing $97 a barrel and growing expectations of a US rate hike in September are weighing on risk appetite. At home, a rush of large IPOs is also drawing liquidity away from the secondary market.

At 9:36 am, the BSE Sensex was down 170.94 points, or 0.22%, at 76,344.49. The index opened at 76,446.05 against Friday's close of 76,515.43. It touched an early high of 76,477.19 and a low of 76,251.46.

The Nifty 50 was down 52.85 points, or 0.22%, at 23,844.85. It opened at 23,883.15 and moved between a high of 23,890 and a low of 23,818.50.

The weakness was broader than the headline indices suggested. Nifty 100 fell 0.26%, Nifty 200 declined 0.24% and Nifty 500 slipped 0.21%. Nifty Midcap 50 was down 0.13%, while Nifty Midcap 100 fell 0.16%. Nifty Smallcap 100 was almost flat, declining 0.05%. India VIX, however, rose 1.87% to 10.88.

Here are the key factors driving the market lower:

IT STOCKS LEAD THE SELL-OFF

IT stocks were among the biggest drags on the market after stronger-than-expected US jobs data strengthened expectations of a Federal Reserve rate hike in September.

The Nifty IT index fell 1.72% in early trade, making it the worst-performing major sectoral index. Indian IT companies derive a significant portion of their revenues from the US, and higher interest rates can weigh on corporate technology spending and client budgets.

Among major stocks, Infosys fell 1.28%, HCL Technologies declined 1.49%, while Tech Mahindra was down 0.10% in the broader sectoral picture. TCS was also lower by 0.89%.

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said the stronger US jobs data had increased the chances of a September rate hike.

"The better-than-expected jobs data in the U.S. has raised the prospects of a rate hike by the Fed in September. This also will weigh on equity and bond markets globally," Vijayakumar said.

Higher US rates can also make dollar assets more attractive for global investors, potentially reducing the relative appeal of emerging markets such as India.

MIDDLE EAST TENSIONS KEEP CRUDE OIL NEAR $97

Geopolitical tensions remain another major headwind for Indian markets.

The latest escalation in the Middle East has kept investors worried about possible disruptions to oil flows. Brent crude was trading at $97.13 a barrel, up 0.88%, while WTI crude was at $92.36 a barrel, up 0.96%.

For India, which imports a large share of its crude oil requirements, a sustained rise in oil prices can increase the import bill and put pressure on inflation and corporate margins.

The impact is particularly visible in sectors such as aviation, paints and automobiles, where fuel or crude-linked input costs can have a direct impact on profitability.

The Nifty Auto index fell 0.18%, while Nifty Oil & Gas declined 0.31%. Asian Paints was among the biggest Sensex losers, falling 1.61%, while the stock has also been facing pressure from concerns over higher input costs.

Vijayakumar said the market has been drifting lower despite positive domestic economic and corporate earnings signals because of the combination of geopolitical tensions and elevated crude prices.

"The market has been drifting down for four weeks now. A relevant question is: why this downtrend despite positive fundamental news regarding the economy and corporate earnings?" he said.

"One explanation is that worsening tensions in the Middle East and the consequent elevated crude prices are weighing on the market," Vijayakumar added.

IPO BOOM IS PULLING LIQUIDITY AWAY FROM SECONDARY MARKET

A major domestic factor behind the current market trend is the strong pipeline of IPOs.

According to Vijayakumar, investors are increasingly focusing on the primary market for potential listing gains as a large number of IPOs are set to hit the market in September.

"There are eleven mainboard IPOs hitting the market this week. The mega IPOs from NSE and Jio also are expected this month. These mega IPOs are expected to absorb humongous liquidity from the market," he said.

He added that investors are looking for listing gains from the upcoming issues, shifting some attention and liquidity away from listed shares.

"In brief, the present focus is on the IPO market rather than the secondary market. This is likely to continue throughout September," Vijayakumar said.

This comes at a time when Indian equities have already been facing pressure from foreign flows and global macro concerns. The combination of heavy IPO fundraising and a cautious secondary market can therefore keep liquidity conditions tight for existing stocks.

14 OF 16 MAJOR SECTORS IN RED

The sectoral picture remained weak, with 14 of the 16 major sectoral indices trading lower in early trade.

Besides IT, Nifty Media was down 2.67%, making it the biggest sectoral loser. Nifty Metal declined 0.72%, Nifty Realty fell 0.67%, Nifty FMCG slipped 0.51%, Nifty PSU Bank fell 0.43% and Nifty Private Bank declined 0.27%.

Nifty Financial Services 25/50 fell 0.19%, while Nifty Financial Services Ex-Bank declined 0.14%. Nifty Consumer Durables was almost flat, down 0.02%.

There were, however, pockets of strength. Nifty Pharma gained 0.09%, while Nifty Healthcare rose 0.07%. Nifty MidSmall Healthcare gained 0.21%, Nifty Chemicals rose 0.03% and Nifty 500 Healthcare was up 0.20%.

ADANI PORTS, POWER GRID AMONG GAINERS

Adani Ports was the top Sensex gainer, rising 1.63%. Bajaj Finserv gained 1.02%, Power Grid rose 1%, NTPC advanced 0.96%, Titan gained 0.70% and Reliance Industries rose 0.44%.

Trent was up 0.43%, Bajaj Finance gained 0.37% and Sun Pharma rose 0.13%.

On the losing side, Asian Paints fell 1.61%, HDFC Bank declined 1.56% and M&M lost 1.56%. HCL Technologies fell 1.49%, Infosys declined 1.28%, State Bank of India dropped 1.22% and IndiGo was down 1%.

Bharti Airtel declined 0.59%, Maruti fell 0.60%, ICICI Bank lost 0.61% and Tech Mahindra was down 0.86%.

MARKET CAUGHT BETWEEN DOMESTIC AND GLOBAL HEADWINDS

The latest decline comes despite a relatively positive domestic economic backdrop. India's growth indicators and corporate earnings outlook remain supportive, but investors are currently paying greater attention to global risks and the heavy IPO pipeline.

Vijayakumar said the market's near-term direction will depend on whether these competing forces can regain balance.

"The present focus is on the IPO market rather than the secondary market," he said, adding that this trend is likely to continue through September.

For investors, the key factors to watch in the coming sessions will be crude oil prices, the US Federal Reserve's rate outlook, Middle East developments and the flow of money into the IPO market.

With Brent already above $97 a barrel and US rate-hike expectations strengthening, the market may remain volatile even as India's domestic economic fundamentals continue to provide some support.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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