Sensex, Nifty run out of steam by day-end; volatility here to stay, say experts

Domestic benchmark remained lacklustre on Thursday as market participants returned to trading consoles after the Dusshera break. Sensex and Nifty gave up initial gains after a gap-up opening on Thursday morning.

Market experts are of the view that volatility in Indian stocks is likely to persist amid fears of an impending global economic slowdown and recession in key markets such as US and EU, as central banks worldwide continue to hike interest rates to fight inflation.

The 30-share S&P BSE Sensex closed at 58,222 levels, adding almost 157 points or 0.27%, while the broader CNX Nifty50 settled at 17,332 levels, closing almost 58 points or 0.3% higher from previous closing levels.

JSW Steel, Coal India, Hindalco, Tata Steel and Larsen & Toubro were the top Nifty gainers, adding between 2-5% during the day, and Bharti Airtel, Hindustan Unilever, HDFC, IndusInd Bank, and Divis Labs were the top laggards, shedding between 1.3-2.6% on Wednesday.

“On daily charts, the Nifty has formed a small bearish candle, which is indicating temporary weakness. However, the medium-term sentiment is still bullish. A fresh uptrend is possible only after the breakout of 17425 level and above the same, the index could hit 17500-17550 levels. On the flip side, below 17425 the index could slip till 17200-17150,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd in a post-market note.

Broader markets outperformed Nifty50 with Nifty Midcap 100 and Nifty Small 100 indices ending over 1.2% higher. Among indices that track industrial sectors, Nifty Bank advanced 170 points led by ICICI Bank; Nifty Pharma snapped a 6-day winning streak, retreating 0.3%. Among the winners, Nifty Metal gained 3%, emerging as the top sectoral index of the day and Nifty IT gained 1.5%.

Morgan Stanley’s Ridham Desai said the market continues to fight a wall of worry, and there are major triggers on both sides for a major move. He expects heightened volatility and higher correlations with likely moderation in relative returns post India's stellar performance in recent months.

On potential downsides, globally investors worry about a deep and broad recession in US, potentially leading to slowing earnings, a melt-up in the US dollar and consequent pressure on Balance of Payments. Further, the worsening of the Ukraine-Russia with a concomitant rise in oil and fertiliser prices may lead to elevated inflation and higher rates.

Absolute returns in the Indian markets are likely to remain modest as they have been since October 2021, and relative returns, too, could be peaking as correlations across stocks seem to have bottomed. These factors signal a market driven by macro warranting wider sector positions, the brokerage added.

Morgan Stanley is 'Overweight' on Financials, Technology, Consumer Discretionary and Industrials and underweight all other sectors.