Nifty Drops 1% on Global Trends; India VIX Rises 14% with Election Concerns

Benchmark indices Sensex and Nifty 50 fell nearly 1% this morning, reflecting similar negative cues from international markets. The fall was sparked by a report indicating that US consumer sentiment had hit a six-month low, thus sparking concerns over short-term rising inflation.

At 9:45 am IST, Sensex fell 661 points (0.9%) to 72,003, while Nifty 50 fell 183 points (0.8%) to 21,871. Market activity showed 933 shares advancing, 2,189 shares declining, and 124 shares remaining unchanged. Prasanth Tapse, Senior VP (Research), Mehta Equities, pegged the trading range for Nifty 50 between 21,700 and 22,500. Tapse added that the Nifty 50 would likely find support at 21,800 and resistance at 22,500.

With pre-poll jitters in the air, investors are likely to take a cautious approach, especially with the rise in India VIX adding to the uncertainty. India VIX rose sharply by about 14% to 21 during early trade today. Experts said the ambiguity over the outcome of the general election would continue to affect the market till the results are announced.

While large-cap stocks look reasonable in terms of price, the Indian markets are at overvalued levels. According to VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, Nifty is now trading at over 19 times its estimated FY25 earnings, higher than its long-term average. He partly attributed this to the higher earnings and GDP growth potential of the Indian economy, which no other economy is likely to replicate in the near foreseeable years.

"There is confusion regarding the reasons for the aggressive FPI selling in May. There are media reports attributing the FPI selling to possible setbacks to the NDA/BJP in the elections. It is important to understand that the FPI selling is due to a change in FPI stance from 'sell China, buy India' earlier to 'sell India, buy China' now," added Vijayakumar.

Tata Motors, Tata Steel, JSW Steel, Maruti, NTPC, Reliance Industries, and Power Grid underperformed the Sensex during early trading. In contrast, Sun Pharma, HUL, and Kotak Bank were the only companies that gained ground at the opening bell.

US stock indices also struggled to gain momentum on May 10th as consumer sentiment readings suggested an economic slowdown amid ongoing inflation. Consequently, the yield on the 10-year US Treasury bond rose from 4.45% to 4.50%. Asian stock indices declined on May 13 following signs of economic weakness in China and reports of US President Joe Biden's plans to impose higher tariffs on certain imports from China.

The financial market is currently anticipating the publication of US CPI data on May 15th, as investors seek additional information to better understand the direction of interest rates.