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Indian stocks are poised to erase gains this year as regulatory warnings of growing froth in the market weigh on sentiment.

The NSE Nifty 50 Index cracked below its 50-day moving average Tuesday, breaching the key support level for the first time since November. It has slipped about 3% since surging to an all-time high earlier this month. 

The decline in key benchmarks comes as investors turn cautious on high valuations amid warnings from regulators on froth in small caps and ahead of a national vote next month. JPMorgan Chase & Co., Macquarie Group Ltd. and Manulife Financial Corp. are among the firms that have flagged a shift in sentiment on Indian stocks. 

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“The market structure has broken down in the short term,” Chandan Taparia, head of technical and derivatives strategy at Motilal Oswal Securities Ltd, said by phone. “I will use any rebound to sell and initiate short positions over the next two weeks.”

The nation’s capital market regulator last week highlighted growing exuberance in small- and mid-cap stocks and warned of “patterns of price manipulation” in some new listings, triggering a selloff in such stocks. 

The recent actions by India’s regulators have “raised concerns among investors,” Macquarie analyst Suresh Ganapathy wrote in a note, citing interactions with investors based in Singapore and Hong Kong. 

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