FII selling, F&O expiry take wind out of Sensex, Nifty

Exhibiting sharp volatility ahead of the futures and option expiry of September series later this week, key domestic share benchmark indices retreated sharply on Tuesday, tracking weak global stock markets, with weak economic readings from Europe coupled with slowing foreign fund inflows weighing on the sentiment, said dealers. Markets corrected sharply as heaving selling by foreign institutional investors (FIIs) dragged indices nearly 1.6% as the recent upsurge provided a ground for investors to book profit.

FIIs sold equities worth Rs 1,185.17 crore while domestic institutions remained net buyers at Rs 325.70 crore, according to the provisional data released by the exchange. The BSE-30 Sensex closed at 26775.69 or 431.05 lower from previous close while the CNX Nifty ended 128.75 points lower at 8017.55.

Other Asian gauges such as Nikkie and Hang Seng ended nearly 0.5-1% lower, while key European indices such as FTSE, CAC and DAX were down more than 1% as the trading was in progress.

Investors turned cautious and resorted to profit-taking in key heavyweights after data from Europe showed Germany's Manufacturing PMI slumping to 50.3, its lowest reading since June 2013. The survey also showed economic activity in France contracting in September after posting growth in the previous two months.

Amar Ambani, head of Research at IIFL said, "Going ahead, we expect market to remain highly volatile ahead of the F&O expiry which is on Thursday. Sentiment will also be affected due to the ongoing geopolitical uncertainty and global factors. However, overall trend continues to be bullish, near term support for the Nifty placed at 7950 levels."

Dealers said the markets have been on an upward journey despite poor economic data like high inflation, dismal industrial growth and the June quarter earnings that did not warrant such an uptick.

"There is a strong resistance at 8250 for want of news," said a dealer at a brokerage. "From 7569 on August 8 there has been a 500-point run without any major policy announcements or economic news. The markets therefore had to see some profit-booking," he added.

Most market participants also attributed the fall to geopolitical tensions in Iraq, Syria and Ukraine. The US air strikes in Syria and poor numbers from euro zone also contributed to the fall.

"The upward momentum has now given way to the inevitable correction. The trend could last for a couple of days, though with lower intensity," said Arun Kejriwal of Kejriwal Research.

Most participants expect Nifty to be supported around 8000 levels. But to pierce 8250, they said the news flow has to be massive and positive.

Of the 50 stocks on Nifty, 44 were losers while six advanced. Major losers were DLF at Rs 155.45 lost 6.75%, Cipla 586.20 (4.36%), Tata Motors Rs 518.75 (3.94%) and Tata Steel Rs 483.65 (3.44%). Prominent gainers in Nifty were technology stocks like HCL Tech, Wipro and Tech Mahindra at Rs 1720 (1.22%), Rs 585.55 (0.70%) and Rs 2,472 (0.11%) respectively.

For the next one week, the markets will closely monitor the outcome of Prime Minister, Narendra Modi's US visit, GDP numbers, inflation data and the Reserve Bank of India's monetary policy review on September 30 for a direction. Most players said the upward trend could resume after some consolidation between 7850 and 8000 levels.