Bears guide Street to correction zone

Inflation raises bearish bets; indices trade over 10% below peaks

- Ram Sahgal

Correction came calling for Indian markets on Wednesday, as bearish bets built up after the surprise spike in inflation battered stocks.

The Nifty and its smaller cousins are now 10% below their peaks, while the BSE Sensex teeters on the edge. A fall of 5-10% from the peak is referred to as a pullback, 10-20% is a correction, and below 20% marks the beginning of a bear market. As leading indices plunged, traders' strategy to sell more calls than put options paid off.

Market veterans said the texture of the market has changed from 'buy the dip' to 'sell on rise'.

Signalling the rising bearish sentiment, the Nifty briefly tested its 200-day moving average of 23,545 and closed just above it, down 1.36% to approach a five-month low. The index had hit 23537.85 on 24 June. The Sensex fell 1.25% to 77690.95, also the lowest since 77341.08 on 24 June.

The broader markets fared worse. The Nifty Midcap 150 fell 2.67% to 20010.75, while the Nifty Smallcap 250 shed 3.06% to close at 16670.35. Overall, investors turned poorer by ₹7.93 trillion. Wednesday was also the last day of the Bank Nifty weekly series before the new regime of single weekly expiry per exchange takes effect on 20 November.