Sensex, Nifty dip as MF test results stress market; fall far from over, warn analysts

A broad-based selling weighed on frontline indices the Sensex and the Nifty on March 15, as mutual fund houses released their liquidity stress test results.

The pain is far from over and volatility is likely to persit, analysts said, with small and midcaps coming under pressure yet again.

The Sensex and the Nifty declined up to 0.6 percent at 72,643 and 22,023 on March 15. About 1,557 shares advanced, 2,112 shares declined, and 107 shares unchanged.

Deepak Jasani, Head of Retail Research at HDFC Securities, said the fall is far from over. "We expect some breather in between but the selloff is likely to persist in the near term. If the Nifty breaches below 21,750, more correction can be anticipated," he said.

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Brijesh Ail, Head Technical Research, IDBI Capital, too, said a further correction is likely. "Volatility is likely to be present throughout the March series. We expect the Nifty to break below 21,900 in the next few days and it may come close to 21,100-21,000," he told Moneycontrol.

Anxiety is Dalal Street rose after mutual fund houses revealed their stress test results post Sebi's mandate to Association of Mutual Funds of India (AMFI). Starting March 15, these fund houses need to reveal their stress test results every 15 days.

This test aims to determine how soon the fund managers can liquidate their porftolios in the event of investors seeking redemptions during challenging market conditions.

With several fund houses revealing their stress test results, they have also assured that their portfolios can navigate through choppy market conditions.

For instance, DSP Small Cap Fund with Rs 13,703 crore worth of AUM said that they would need 32 days to liquidate half of its portfolio. "We have built a quality portfolio for our investors to help sail through turbulent market conditions," they said.

Meanwhile, broader markets settled on March 15 on a mixed note. While Nifty Midcap 100 index was 0.5 percent lower, the Nifty Smallcap 100 index gained 0.2 percent. Volatility gauge, India VIX, shot over 1 percent to trade around 13 level.

All sectors were hammered, with Nifty Auto and Oil & Gas indices leading losses on March 15.

Cues for next week

Market participants will keenly watch out the US Federal Reserve's monetary policy stance due on March 20. However, majority of them expect the global central banker to leave interest rates unchanged and start cutting rates from June-end or July onwards.

According to CME Fed-Watch tool, expectations of a Fed rate cut increased to 47.9 percent in July from 47.6 percent a day before.

Back home, India will release its loan and deposit growth, which will be crucial to understand the performance of banking sector.

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