Volatility index soars 25% in one day, momentum broken

Investor sentiment seems to be badly hit by the recent Sebi order against 331 suspected shell companies. Coupled with escalating geo-political tensions concerning North Korea and its threat to attack Guam, a US military base in the Pacific Islands, it triggered a major correction in the market after the recent sharp run up in stocks that took Indian market to record highs. The volatility index went up by 25 per cent in one day and analysts predict that the market will be hit very badly on Friday morning. According to analysts, the market momentum has been broken and there could be further correction in the short to medium term.

The sell-off in the market intensified in both frontline and midcap segment with about 90 stocks, including Tata Motors, Lupin, Sun Pharma, Adlabs, Dwarikesh Sugar, Piramal Phytocare and Vardhman Poly, hitting a fresh 52-week low on NSE in Thursday’s trade. There was panic selling on account of weak global and domestic cues with auto, banking and FMCG stocks at the receiving end. As per analysts, the Nifty could hit 9700 levels and if that level breaks, then a further correction is on the cards. “The recent Sebi action has hit the confidence of investors, especially those investing in small and midcap segment, that is why we are seeing the sell off in the market,” said Vinod Nair, head-research, Geojit Securities.
"We have been cautions for sometime after the recent sharp rally which is not backed by fundamentals and high valuations. The earnings so far has met the street expectations, but the remaining corporate numbers may not be that good and there is the risk of downward revision in earnings for many companies. We could see further correction in the short-term, while we are maintaining our March FY18 Sensex target of 32,500,” he added.

Markets opened lower due to weak cues from the Asian peers, as a massive sell off in the latter half dragged the Nifty even below the 9800 mark. A modest recovery toward the fag end trimmed some portion of losses to conclude the session with a cut of 0.89 per cent over the previous close.

Many midcap and small cap counters fell sharply.  Angel Broking’s chief analyst-technical and derivatives, Sameet Chavan, said: “Going forward, our market is likely to remain under pressure and any intra-day bounce back towards 9,850–9,900 is likely to get sold into. On the flipside, we will not be surprised to see this corrective move getting extended towards 9,760–9,700 in a day or two. Traders are advised to remain light and avoid taking undue risks as individual stocks may continue correcting in next few days.”

There is also fear that foreign fund flow could see a reversal due to the recent geo-political tensions in Korean Peninsula. North Korea. According to a report, sustained capital outflow by foreign funds and Asian markets’ weak trend, following a sell-off in the US and Europe on the escalating geopolitical tensions, kept the domestic bourses downbeat.