For the second day, profit-booking was the theme of trade on Wednesday as most of the financial sector stocks -- both banks and NBFCs -- witnessed corrective moves, shedding some of the excessive weight which they had gained since last Friday. The Bank Nifty lost 597 points to end the day at 29,586 and the main Nifty 50 lost 148 points to end the day at 11,440.20, down 1.28 per cent. The Bombay Stock Exchange’s BSE Sensex was similarly down 1.29 per cent or 503.62 points at 38,593.52.
The sharp spike in volatility was expected, given the fact that this is the expiry week of the September monthly derivative contract, as also weekly option contracts, which will be take place on Thursday. Normally, in the week in which an expiry of monthly contract takes place, there is a sharp spike in volatility.
It is very likely, though, that volatility would remain high over next few sessions as roll-over to October series continues on Thursday and ahead of weekend it might be impacting trade in early part of the trade. While on the face of it, the correction may look severe, but in view of the sharp rise which markets had witnessed in the last three trading sessions, the correction is completely normal. In fact, a small correction after a big rise is an indication that there is high probability that markets, both at an indices level and market-breadth level would turn positive.
Adding to the pressure was the Asian markets which traded in the red given the uncertainty on two counts. First was the political uncertainty which increased after reports suggested that US President Donald Trump might face impeachment. Second was the uncertainty on the trade talks between the US and china. Statements indicating that talks might not be progressing at a pace at which the equity and commodity market expected, also made some of the prices of some commodities started to gather some strength.
The buzz on the Dalal Street was that the Chinese authorities has issued notices to 400 units which are in specialty chemical space to either reduce the pollution or had closed some of them. This made some chemical companies’ stocks see a spike. Whether it is just another random noise which has been hitting specialty chemical space or it is another round of sustained upward movement need to be watched over in the next few sessions.
(Nagpal is an analyst at Market Wizards Securities Private Ltd)