Why did the Nifty and the Sensex correct so sharply from the peak levels?

The Nifty and the Sensex corrected sharply in the second half with the Sensex losing more than 475 points from the peak as profit booking in banks and in RIL took its toll on the market overall. The Nifty ended down 24 points at 11,440.

There was heavy selling in blue-chip counters like HDFC Bank, HDFC, Reliance Industries and ICICI Bank. To an extent the decision by SEBI to tweak the multi-cap fund norms took its toll on large caps as they could potentially see selling to the tune of Rs.40,000 crore.

Sensex closed 98 points lower but in a weak market, the IT index was up sharply. While TCS crossed the Rs.9 trillion market level for the first time, HCL Tech was up 8% and closed with a market above Rs.2 trillion to become the third IT company in India to cross Rs.2 trillion.

It was not surprising that the smaller companies did a lot better. S&P Mid Cap index gained 1.56% during the day while the S&P Small Cap index ended 4% higher. They were clear beneficiaries of the multi-cap fund norms tweaked by SEBI on Friday.

Global markets across Europe and Asia were higher on Monday as AstraZeneca resumed its Phase-3 trial after the brief stoppage. However, there is the FOMC meeting coming up on Wednesday and markets may be disappointed if the economic growth remains tepid.