Sensex sheds 1,300 points after crossing the 73,000 mark; is it time to be cautious? Here's what top experts say

The Indian stock market indices, Sensex and Nifty 50, experienced a substantial decline on Wednesday. The downward trend was attributed to widespread sell off led by global market weaknesses as well as selling in the heavyweight banking stocks as HDFC Bank's Q3 earnings disappointed. The benchmark Sensex plummeted over 1,300 points while the Nifty shed over 350 points.

Notably, all sectoral indices reflected losses, with banking stocks bearing the brunt, primarily influenced by the Q3 results of HDFC Bank. The banking sector witnessed intense selling pressure, leading to an overall market downturn. HDFC Bank's share price recorded a notable decline of more than 7 percent following the announcement of its December quarter earnings.

This downturn had a cascading effect, causing Nifty Bank to experience a drop exceeding 2.5 percent. “Today, the Sensex and Nifty experienced a significant downturn, driven by a sell off in banks following HDFC Bank's Q3 results and amidst unfavorable global indicators. The Nifty fell below 21,800, while the Sensex recorded an 850 point decline.

As for Bank Nifty, it's currently trading below 47,000, with a decrease of more than 2.5 percent. It's wise to adopt a wait and see approach before making any decisions. Regarding Nifty, right now, 22,120 is like a barrier that's difficult to surpass. This might be a good chance to buy stocks, but it's crucial to set a stop loss for safety," said Shrey Jain, Founder and CEO of SAS Online India's Deep Discount Broker.

However, earlier this week, the benchmark Nifty surpassed a new landmark of 22,000 while Sensex crossed the 73,000 mark for the first time ever on January 15. Both benchmarks also hit their new highs in the previous session, even though they ended in the red. Nifty50 hit its fresh record high of 22,124.15 on January 16 while Sensex touched its all time high of 73,427.59.

The recent record high rally in the benchmark indices was primarily driven by the information technology (IT) sector, as industry leaders such as Infosys, TCS, Wipro, and HCL posted a healthy performance in the third quarter of the fiscal year 2024. "The broad market exhibited profit booking following a good performance by the IT sector amid weak global cues.

Investors are contemplating whether the current euphoria in markets has gone farfetched, especially with elevated domestic valuations in mid & small caps. FII flows are mixed due to a lack of fresh triggers. Oil prices stayed firm amid undeterred geopolitical tensions. The latest IIP growth signals near term softness," said Vinod Nair, Head of Research, at Geojit Financial Services.

Meanwhile, the incumbent government's likeliness of winning the third term in the 2024 general elections, hopes of a rate cut, moderating inflation, and rising economic growth are likely to keep the market sentiment positive going ahead. Both benchmarks have risen over 1 percent in January so far, meanwhile, they have risen around 22 percent each in the last 1 year.

But with today's drop and the December quarter earnings season ahead of the upcoming Interim Union Budget in focus, Here's what experts say. noted that the IT sector has led the Nifty rally this month because of decent results backed by cheaper valuations. However, the recent upswing warrants a certain degree of caution as, many times, such sharp rallies do not sustain.

Thus, he believes that the near term view will be cautious and suggests profit booking in areas of exuberance, especially in the small cap space. stated that the better than expected results from the IT majors have hinted that it may be the bottoming out of the poor performance by the IT stocks. "Nifty appears poised for another rally as Foreign Institutional Investors (FIIs) have turned net buyers in the cash market in the past two months.

Anticipated rate cuts this year are expected to further fuel Nifty's rally until the general election. However, intermittent volatility especially due to budget and occasional profit booking cannot be ruled out," stated Gupta. Meanwhile, till it lasts while keeping a very close eye on the markets for weaknesses.

"The setup for 2023 was very powerful as its previous calendar year witnessed only 10 new 52 week highs, while for 2024, its previous calendar year saw a staggering 29 new 52 week highs. Today markets opened at new lifetime highs marking the second new lifetime high in just 15 days of the calendar year 2024.

This indicates that it is like a mature adult bull market rather than a young and raging one," he said. , also advises to book a little bit of profit. "It is always better to be cautious and take small profits consistently rather than risk everything and potentially lose big. So, if the market falls, it is a good opportunity to buy more, and if it continues to go up, you'll still make a small profit.

The overall market strategy will be to minimize risk while still allowing traders to benefit from market movements. It's important to observe the market, wait for the right moment to enter, and trade in small quantities. Don't go against the trend, and always be cautious. Remember, the market is unpredictable, and it is always better to stay on the safe side," he advised.

The expert suggested investors that it is important to recognise that the ‘trend is your friend’. Don't go against the trend. He also noted that in the current market conditions, all technical indicators are overextended, which means it is not a good idea to jump into the market right now. Instead, it is better to observe the market and wait for a bullish signal before starting to trade again.

"To navigate, there are three possibilities for the market right now. It could go sideways, up, or down. If it goes sideways, you will lose less because you have small quantities in your portfolio. If it goes up, you will earn a small profit, but you won't lose the profit you have already earned.

And if it goes down, you won't lose much either. Sensex has marked 73,148.90 and 22,036.40 levels; analysts say it can move high as well. Interestingly, the market is moving up, but it is creating a new structure that many traders are not used to. They have not seen such a rally before, so we can say it is uncharted territory.

This means that it is difficult to predict for how long the market will trend," cautioned the expert. Livemint tops charts as the fastest growing news website in the world to know more. Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.