IT stocks fall and banks surge to even out impacts of volatile market

Indian frontline stock indices remained range-bound in volatile trading on Wednesday, as investors chose to stay cautious ahead of the crucial US Federal Reserve meeting.

The market experienced a tug-of-war between declining IT stocks and resilient financial shares. A sharp drop in IT stocks heavily impacted the market, pulling the frontline indices down. Pharmaceutical stocks also faced significant declines. However, strong support from financial stocks helped cushion the overall losses, mitigating the day’s market downturn.

Slight drops in Nifty, Sensex

Amidst the volatility, the Nifty 50 concluded the session with a slight drop of 0.16 percent, ending at 25,377 points. During trading, the index reached a new all-time high of 25,482 points, approaching the 25,500 level. Similarly, the Sensex finished the day at 82,948 points, marking a 0.16 percent decline from its previous close. The index also achieved a new record high of 83,326 points during the trade. 

Among the 50 Nifty constituents, 29 stocks ended in the negative territory, with TCS leading at 3.4 percent drop. Other notable losers included Infosys, HCL Technologies, Tech Mahindra, Wipro, Bajaj Auto, Sun Pharmaceutical, and Tata Consumer Products, all of which dropped between 3.1 per cent and 1.5 percent.

On the other hand, small-  and-mid-cap stocks underperformed the benchmark indices in Wednesday's trade, with the Nifty Midcap 100 dropping to 59,752 points, a 0.71 percent fall, while the Nifty Smallcap 100 index tumbled by 0.64 percent to 19,389 points.

Minor profit-booking

Commenting on today's market performance, Vinod Nair of Geojit Financial Services said, "The Indian market experienced a minor profit-booking with underperformance by midcaps. Mixed signals from global markets emerged ahead of the anticipated rate-cut decision."

“Investors assess the potential for a short-term underperformance of equity given the elevated valuation and correction of metal prices. Commodities, including oil prices, are steadily declining, suggesting a potential tempering of economic growth. Investor caution is evident as gold prices rise, likely due to anticipated dollar weakness following the rate cut,” Vinod Nair added.

Six-week low for Nifty IT 

The sharp drop in the largecap IT stocks led the Nifty IT index to plunge by 3.02 percent to 41,814 points, falling below the 42,000 mark for the first time since September 9. Today's drop in the index was the biggest intraday drop in 6 weeks. This decline has pushed the index to a 2-week low.

The significant decline in IT stocks observed today is mainly due to profit-taking by investors after a strong rally over recent months. Since June, IT stocks have experienced a bullish trend, with the Nifty IT index rising by 32 percent from June to August, leading investors to lock in profits.

The profit-booking occurred ahead of the anticipated US Federal Reserve rate-reduction cycle, expected to start on September 18. With easing inflation and a cooling labour market in the US, investors are preparing for this policy shift. Market expectations had priced in a 25-basis point cut, with some anticipating a more substantial 50-basis point reduction, which analysts believe could spur a rally in stocks.

Bank Nifty at 10-week high

Banking stocks surged sharply in today's trading as investors shifted their focus from IT and pharmaceutical sectors to banking, which had been lagging behind. The Nifty Bank index ended the session with a 1.08 percent gain, closing at 52,954 points, and hit a 10-week high during the day..

Amit Goelof Pace 360 believes the Fed rate cut will have a positive impact on banking stocks. "Lower interest rates typically lead to increased borrowing activity, benefiting banks through higher loan demand and associated interest income. Additionally, lower rates can reduce the cost of funds for banks, improving their net interest margins. Moreover, lower interest rates can decrease the risk of loan defaults, enhancing the quality of banks' assets," Mr Goel said.

(By arrangement with livemint.com)