Indian benchmarks, the Sensex and Nifty 50, took a sharp hit on May 20 and ended with deep cuts as weak global cues, profit booking, and a more cautious stance from institutional investors soured sentiment.
At close, the Sensex tumbled 873 points or 1.1% to end at 81,186.44 while the Nifty also lost around 262 points 1.1% to close at 24,683.90.
The weakness was widespread, with all sectoral indices closing in the red. Major sectors like banking, financial services, and FMCG came under pressure, with each sectoral index down nearly 1%. Meanwhile, the Nifty Auto index took a sharper blow and slumped close to 2%.
A similar story panned across the broader market, which houses small and midcap stocks. The the Nifty Midcap 100 plunged nearly 2% while the Nifty Smallcap 250 slipped around 1%.
Global investor sentiment turned cautious since the last session following Moody’s decision to downgrade the US government’s credit rating from the top-tier AAA to Aa1, sounding alarms over rising debt levels.
The move triggered a spike in bond yields, with the 30-year US Treasury yield climbing to 5.03%, its highest since November 2023. Higher yields have stoked fears of tighter liquidity conditions globally, often translating into capital outflows from emerging markets such as India.
To that effect, foreign Institutional Investors (FIIs) also turned net sellers of Indian equities to the tune of Rs 526 crore on May 19, joined by Domestic Institutional Investors (DIIs), who also offloaded Rs 238 crore worth of shares, marking the first time in over a month that both investor categories sold on the same day.
Another actor at play in today’s session was profit booking, which seeped into the market after the robust rally in the past few weeks, partly driven by optimism following the Operation Sindoor ceasefire.
Vinod Nair, Head of Research, Geojit Investments believes that it was with a lack of major positive triggers and prevailing uncertainty over US' fiscal stability that investors opted for profit-booking and adopted a cautious stance.
"Selling pressure was also widespread as participants awaited more clarity on the India-US trade agreement. Given the current premium valuations and delays in the trade deal, we foresee a phase of short-term consolidation, which may lead FIIs to scale back their positions in the domestic market," Nair added.
With the Sensex and Nifty surging nearly 4% over nine, debates over valuations turning hot sprung back into the limelight. On that account, the fall in today’s session was also regarded as a much needed breather after the robust win run.
On the technical front, Shrikant Chouhan, Head of Equity Research at Kotak Securities, believes that the market is likely to remain in a corrective phase as long as the Nifty trades below 24,850.
On the downside, he sees a potential for the Nifty to retest support levels at 24,550–24,500. However, if the index manages to crosses above 24,850, Chouhan anticipates the sentiment to shift positively. In that scenario, he sees a strong possibility of the Nifty moving towards 25,000.
