Sensex, Nifty Fall 2%: Here's What Investors Should Do

While the benchmark indices tanked over 2% on Wednesday—weighed mostly by banking stocks—market analysts said the pain has just started and investors must switch to a "sell on rise" strategy.

Banking stocks looked topped out even a few weeks ago, according to Jai Bala, founder and chief market technician at Cashthechaos. "The most significant move today is the banking index and we have been warning about it."

"The support for the banking index is quite deep and its next support comes in at about 44,400," he said.

But the Nifty is still above the critical support of 21,448, and Reliance Industries Ltd. is the only one that is holding it up, Bala said. "Reliance looks like it has an unfinished move... and it is at its last sequence of higher highs. Once that is done, I think the Nifty will also start dropping."

When the market bounces, it will switch to a "sell on rise" strategy, Bala said.

On Wednesday, the Sensex saw a significant decline of 2.25%, marking its most substantial fall since Aug. 30, 2022. The Nifty also witnessed a notable 2.15% decline, representing its most significant drop since Jan. 27 this year.

HDFC Bank Ltd.'s performance is expected to have contributed to a downturn in overall market sentiment.

Investors have to be selective in choosing stocks as the valuations have reached the upper band of around 22,000, according to Devarsh Vakil, deputy head of retail research at HDFC Securities. "We have to be selective in the sectors we bet on."

The pharmaceutical space, PSUs and selective capital goods are good places to invest, he said. According to him, it is better to invest more in large-cap stocks.

The market was waiting for an excuse to correct and is at a stage where any disappointment will get a severe answer, said Nischal Maheshwari, chief executive officer at Centrum-Institutional Equities.

The pain has just started and there will be more corrections, Maheshwari said. "The markets have moved away from 'buy on dips' to 'sell on rise'. I believe that there is some more time that the market is going to spend on the lower end."

He said that there will possibly be another 400-500 points cut before heading up again.

"We are in a good situation both internationally and domestically, and so there will be severe corrections," Maheshwari said. "On a long-term basis, equities will do well in 2024 and particularly in India... because India is really in a Goldilocks scenario."