What was the reason for the sharp correction in stock markets on 28 September? How do you see the Nifty and Sensex on Wednesday?

There were a number of reasons for the correction in the markets, and it was largely global. The worsening Evergrande crisis and the power crisis in China is one key issue. Then, the US is approaching the debt ceiling. Jerome Powell has warned that inflation could go higher, which raises the risk of front-ending rate hikes. All these contributed to the fall.

However, it must be remembered that on Tuesday, at one point, the Sensex was nearly 1000 points down but recovered 600 points to close a little over 400 points lower. The bounce was largely triggered by a bunch of PSU stocks like Power Grid and NTPC. While these were the index gainers, there was all-round value buying in these PSU stocks.

Two things were a tad disconcerting in the markets on Tuesday. The A/D ratio of the Nifty was favouring declines at 18:32. The bigger risk is the constantly rising VIX, which remains elevated around the 18.54 levels. In addition, the Indian markets are also at all-time highs and unless the earnings really catch up in Sep-21 quarter, there is a distinct valuation risk.

FPIs bought Rs.1,958 crore of equities on 28-Sep but DFIs bought Rs.162 crore. Clearly, the China crisis and the US debt ceiling are making investors jittery. On Tuesday, the Dow was down around 150 bps, NASDAQ down 280 bps while the CAC and DAX were 220 bps lower. Even SGX Nifty was nearly 100 bps lower in early trades. That will keep the pressure lid on.