More pain awaits market: Sensex may fall 3-4% further, fear D-St analysts

Profit booking and global cues may keep the domestic equity market under pressure despite Sensex registering over a 1,000-points fall on Thursday, breaking its 10-day gaining streak.

Fundamental and technical analysts both see scope for further correction in the market going ahead.

Gaurav Dua, SVP, Head Capital Market Strategy and Investments, Sharekhan by BNP Paribas said, “We see scope for 3-4 per cent fall from the current level before things stabilise and markets find a durable short-term bottom.” However, he suggests that investors should buy quality stocks like ICICI Bank, Infosys and Cipla in case of any further fall.

Intense selling in banking and IT stocks weighed on the domestic indices on Thursday as fading hopes of further stimulus in the US and resurgence of the novel coronavirus cases globally impacted sentiments.

Chartist Aditya Agarwala, Senior Technical Analyst, YES Securities said that Nifty formed an enormous Bearish Engulfing pattern on the daily chart on Thursday. Moreover, in the weekly time frame, the index is forming a Dark Cloud Cover pattern, which signifies weakening uptrend. A Bearish Engulfing pattern is considered as a bearish reversal pattern, which usually occurs at the top of an uptrend.

The US stocks, too, fell on Thursday as an unexpected rise in weekly jobless claims exacerbated fears of a stalling economic recovery. Treasury Secretary Steven Mnuchin dashed hopes for any more fiscal aid before the election. The Dow Jones Industrial Average index was down nearly 200 points at 28,314 in early trade.

Vinod Nair, Head of Research, Geojit Financial Services said, “The market had moved-up in the expectation of a big stimulus, but the desired fiscal package was not announced in India and a delay in the US and Euro has changed the trend. At the same time, the pace of economic recovery is under stress because of a resurgence of high rates of Covid infection, mounting to high economic restrictions.”

He further added that the margin of safety is low given premium prices and a slowdown in economic recovery. The trend going forward will depend on the supportive measures announced in context to stimulus and commentary of Q2 results.

In terms of valuation, the domestic equity market is not looking in a comfortable zone. The 30-share index traded at a price-to-earnings ratio of 29.10 against its long term 10-year average of 20.93 times. The 30-share Sensex and 50-share Nifty index had advanced 7 per cent during September 29-October 14.

Kranthi Bathini, an investment adviser at Wealth Mills Securities said, “Technically, the market looks weak. Nifty’s level of 11,200 is a key to watch in the medium term. The domestic equity market may drift lower in case of further weakness in the US market.”

The NSE Nifty index on Thursday settled 290.70 points, or 2.43 per cent, down at 11,680. Barring Asian Paints (up 0.32 per cent), other 29 components in the Sensex settled in the red with Bajaj Finance falling the most 4.68 per cent. Tech Mahindra, IndusInd Bank, ICICI Bank, State Bank of India, Reliance Industries and Bharti Airtel cracked between 3 per cent and 5 per cent each.