On 20th January, NIFTY closed at 14,644 points. The next day, it opened with a gap-up at 14,730 points. Just like us, you would have also expected NIFTY to cross the major mark of 15,000 points this week itself.

Startlingly, the next four trading sessions have been completely dominated by the bears. On 28th January, NIFTY closed at 13,819 points. Look at the chart below to understand how the trend has completely reversed in the last five candles. All of the last five candles have created lower lows (as shown by the yellow line). This tells us that the sentiments in the market are pretty bearish.

Within five trading days, NIFTY has lost more than 900 points! What is causing this amazing fall in the market? How have things changed suddenly in the market? When the market is falling so freely, you cannot attribute just one reason. There has to be a cumulative effect which is dragging down the market. Let’s dig deeper and understand why the markets are actually falling!

FIIs are Finally Selling!

(To know who FIIs are, click here.)

From 17th November 2020 to 21st January 2021, FIIs turned into a net seller for just two trading days. These days were 21st December 2020 and 6th January 2021. The net selling quantity in both of these days was pretty low as well (Rs 323 crore and Rs 483 crore respectively). 

All this while, FIIs were pumping a huge amount of money into the Indian equity market. Why? The interest rate in many markets is almost 0%. This means, even if you borrow the money, you don’t have to pay a lot of interest. The FIIs are borrowing money and investing in the equity market. When the market goes higher they will start booking their profits. They will pay their liabilities and enjoy the profits they have earned. Very simple, right? It is the retail investors who get trapped in this cycle. He is unaware of when to exit and in the bullish market, he expects his portfolio to turn even greener.

The tides have changed significantly now. In three continuous trading sessions, FIIs have pulled out a lot of money. On 22nd, 25th and 27th January, FIIs have been a net seller for Rs 635 crore, Rs 765 crore and Rs 1,688 crore respectively. This is still very less compared to how much they have been buying in the last many weeks. We have been saying that FIIs have been on an unimaginable buying spree over the last few months. Is that rally finally over now?

Retailers have also been part of the ride, and many booked profits in the peak.

Global Markets Running out of Steam?

Dow Jones reached 31,188 points on 20th January 2021. Since then, it has lost almost 1000 points in just one week. FTSE 100 is an index of England’s stock market. The index crossed 6,850 points on 8th January 2021 but has fallen to 6,550 points as of 28th January. A similar pattern can be observed with DAX, a German stock index. The index lost more than 500 points in the last 12 trading sessions. 

As explained above, the low-interest rates prevailing in a low economy helped institutions to borrow money and invest in the stock market. This high liquidity generated a lot of bullishness in the global market as they kept on rallying on. In the last few months, we also heard several vaccines coming out claiming that they are the effective cure of Covid-19. The vaccination program has also started on a large scale in many countries. Not much attention is given to that now. So, are the global markets falling just because they are out of all the good news?

We have institutions booking profits, and then panic selling in the markets by retailers.

Fun fact: The inauguration of Joe Biden as the 46th president of the United States of America took place on January 20, 2021. Markets falling steeply after that date is just a coincidence, right?

Farmers’ Protest

For more than 50 days, thousands of farmers are protesting on the outskirts of Delhi. On 26th January, when the nation was watching the famous parade on India Gate, we heard some really hurtful news. There was a large violent clash between the Delhi police and the farmers. The stills from Red Fort, one of the most prominent monuments of India, was highly embarrassing.

Many people even compared this to the agitation seen at the US Capitol a few days back. The violent and disturbing event which unfolded sent negative impressions to the investors. They try to stay away from the market which is facing unrest and invest in other markets. This is a common behaviour of all the investors. Will you invest in a country which is dealing with a lot of internal conflicts? No. We wonder if this is the reason why FIIs sold worth Rs 1,688 crore on 27th January.

The Upcoming Union Budget 

India’s Union Budget for 2021-22 is set to unveil on 1st February 2021. Many analysts claim that this is one of the most important budgets in recent times due to Covid-19’s financial impacts. All eyes will be on the Financial Minister, Nirmala Sithariman, as she delivers her all-important speech after two days. 

Big events like elections or budget announcements are quite unpredictable. These events can cause huge volatility in the market. Thus, many of the investors try to stay away from the market these days. With the market reaching its all-time high, many investors would have taken the safe route to book their profits and move out of the market. If the budget sounds positive to their ears, we can expect the market to make a come back.

Remember to hold only fundamentally strong stocks in your portfolio, companies which you understand well. Maintaining stop losses on stocks you hold is also not a bad idea. Book profits from the random stocks in your holdings and reinvest in good stocks a bit at a time, not altogether.

Do you think there is any more reason why NIFTY is falling? Let us know in the comments section of the marketfeed app.