It was a downward trend for Indian markets this week, with key indexes closing in the red three times out of four. The market was closed on Tuesday on the occasion of Eid.
Through the week, the S&P BSE Sensex fell 2.5 percent to close 25,480 while the NSE Nifty was off 2.4 percent to shut shot at 7,602.
Shares in the broader market fared better though, with the CNX Midcap index down about 0.2 percent for the week. The BSE Small Cap index erased 1.5 percent.
Also read: Global concerns drag Sensex 414 pts; rupee ends at 61.18/$
The move came after the markets edged to fresh all-time highs recently – the NSE Nifty had on July 25 closed at 7,826 but has entered a slow downward trend since.
Equities have a had solid run globally over the past year with major markets such as S&P 500 (US), CAC (France), DAX (Germany), Nikkei (Japan) and Hang Seng (Hong Kong) rising between 4 percent and 11.7 percent over the past one year.
But Indian stocks have topped most major markets, logging a gain of about 30 percent over the same period amid hopes the new reformist government at the centre would take steps to boost economic growth.
The latest correction, however, has not got most analysts worried too much.
"The market needs a correction, the market has had a great run and if this is really going to be a structured bull market, we need a correction," Sandeep Bhatia of Kotak Institutional Equities told CNBC-TV18's Udayan Mukherjee in an interview.
"Expectations [from the current government] are high and announcements and delivery will take longer to come – though they will," he said, adding that the market may have got worried following a "simplistic analysis" that an economic turnaround could be produced soon.
However, high-beta shares that have led most of the recent rally have corrected the most through this week's correction.
For instance, the BSE Capital Goods, Oil & Gas and Metals indexes were down 8 to 3 percent. The IT index was off a relatively less 2 percent.
"The men are being separated from the boys," analyst Jagdish Malkani said. "The recent hype surrounding the infrastructure companies [is receding after the realization that] really nothing is changing on the ground except hope. That somewhat has changed the mood."
But at least some of the down-move can be attributed to a global correction that is taking place.
"Lower inflation in EU, expectations of earlier-than-expected rise in US interest rates and a default by Argentina soured sentiment," Dipen Sheth of Kotak Securities.
"The good growth numbers in the US are priced in but what is not priced in is what that stronger growth will do to: higher US interest rates," Jan Dehn, Head of Research at London-based emerging markets manager Ashmore, said.
"As interest rates increase, they will reveal the real vulnerability in the US economy which of course highly interest-rate sensitive because it is extremely heavily-indebted," he added. "This poses a very serious technical challenge from the US equity markets and will also impact emerging market assets including India."
Gainers for the week included Maruti Suzuki and Bank of Baroda, which gained 2.5 percent each on the back of strong results. Among midcaps, Thomas Cook and JK Lakshmi Cement were up 24 percent and 20 percent, respectively.
Among losers, Hindalco was down 4 percent while Kotak Mahindra Bank was off 3 percent. In smaller stocks, Tata Metaliks plummeted 18 percent while SpiceJet fell 16 percent amid continuing reports of the carrier's financial struggles.
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