Nifty turns negative for 2024 as regulator warnings jolt mid and smallcaps

Broader markets also felt the heat with Nifty Midcap 100 falling by 530 points on an intraday basis while the Nifty Smallcap 100 correcting by 190 points or 1.3%.

Despite a positive handover by the US markets, both Nifty and S&P BSE Sensex struggled to trade in a tight range. Around 11:15 am, Nifty was trading at 21,796.35, down by 21.10 points or 0.1%. The Nifty breadth remained skewed in favour of the bears with 27 stocks trading in the red, 22 in the green while one remained unchanged.

Most sectors witnessed selling pressure. The worst hit were Nifty Metal and Nifty Pharma which were down by nearly a percentage point. The gainers were IT, auto and oil & gas sectors.

Commenting on the market movement, Anand James, Chief Market Strategist at Geojit Financial Services said that Tuesday’s dips stretched a bit more than his comfort zone. "The day will take support from a firm opening and will attract follow-through buying, if we are able to float above 21,865-21,885 region, but expect distribution followed by a turn lower, as long as 22,032 region holds. Direct rise above the same could call for 22140-220, but with low visibility on further rise," James said.

Concerns are growing that India, which has been a favourable destination for foreign investors within the emerging market basket, could take the backseat amid the regulatory headwinds.

The risk-off sentiment in the market was triggered by the Securities and Exchange Board of India (Sebi) last week when it raised concerns over the valuation froth in the broader market and the rising inflows into midcap and smallcap funds. The regulator also asked asset management companies to conduct stress tests, the results of which were released by most of the fund houses last week.

Brokerage PhillipCapital estimates a sharp correction in the euphoric Nifty which is staring at a sharp decline. The 50 stock index could plunge to 18,550 in what could be a timewise correction that may last for a minimum of three quarters according to this brokerage's estimates. This is a 3,470 points or nearly 16% fall from the Friday closing price of 22,023.35.

In the worst-case scenario, it could even test levels of 16,000-15,500 which will be a whopping 6,523 points or 30% fall. In this case, the timewise correction could last for a maximum of 6-7 quarters.

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