Sensex fell 1,939 points on Friday, making it the sixth biggest single-day drop (pointwise) ever for the 30-share index. After three straight sessions of gains, the BSE benchmark ended 1,939 points lower at 49,099, amid heavy selling in global equities.
Similarly, the NSE 50-share index Nifty50 fell by 586 points to 14,529.
Yesterday, Sensex ended 257 points higher at 50,039 and Nifty gained 115 points to 15,097. ONGC, M&M, Power Grid, Axis Bank, Bajaj Finserv traded as the top losers on BSE and NSE.
Here are five key factors that triggered market selloff today
1. Rising bond yields
Within minutes of the pre-opening session on Friday, Sensex and Nifty plummeted 3.5% each, following a weak trend from overseas as investors turned jittery over a spike in bond yields.
Shares in Europe and Asia slumped on Friday as global markets were roiled by a sudden spike in bond yields, suggesting that the market has become a bit nervous about a faster pace of economic recovery. This caused a major drop in growth stocks whose valuation levels were well above historical norms.
The major averages tumbled as the 10-year Treasury yield soared as high as 1.6% in a sudden move that some described as a "flash" spike. The yield later settled back down to around 1.52%, its highest level since February 2020. Tracking spike in US Treasury yields that reached to their highest levels since the outbreak of coronavirus pandemic, bond yields were also rising in many other top economies.
Meanwhile, the US Dollar index (DXY) rose 0.26% to 90.37 against a basket of currencies.
Vinod Nair, Head of Research at Geojit Financial Services said,"Domestic markets tumbled in line with global trend triggered by a sharp rise in bond yields. Increasing geopolitical tension between the US and Syria aggravated the selling. Q3 GDP data which is to be released today also added volatility in the Indian market".
Devang Mehta, Head Equity Advisory, Centrum Broking said," On Thursday, the US 10-year yield climbed to 1.614 per cent, which is the highest in a year. Concerns over inflation in the US is the reason behind the rising of bond yields. The bond market is expecting the likely rise in inflation to push the US Federal Reserve to either lower monthly bond-buying or hike interest rates, an adverse factor for markets like India, which have been a major recipient of foreign inflows of late. This is despite the US Fed's reassurance of keeping the low cost of money intact."
Nirali Shah, Head of Equity Research, Samco Securities said," An instantaneous rise in 10-year bond yields to 1.6% intensified apprehension over inflation which led to the sudden jerk in US indices. As bond yields continue their upward journey, FPIs may turn away from Indian equities and towards the States for higher returns. This stance may negatively impact emerging economy currencies (especially the rupee)which would depreciate on the rise in demand for the dollar. However, this could play out eventually in the future. Market participants should keep an eye on bond yields and the movement of USD/INR which could undergo some depreciation."
2. Rising Covid- 19 cases
Besides the spike in domestic and global bond yields, rising coronavirus cases also spoiled investors' appetite for risk assets.
Fresh concerns over the increase in the number of infected COVID-19 cases contributed to the fears that the economic impact will be much larger than earlier estimates. Further, reports suggesting a likely lockdown in Mumbai also kept investors at the edge.
Total COVID-19 confirmed cases worldwide stood at 1,130 lakh with 25 lakh deaths. Meanwhile, India reported 1.55 lakh active cases of COVID-19 infection and 1.56 lakh deaths while 1.07 lakh discharged patients.
Sumeet Bagadia-Executive Director at Choice Broking said,"Tracking weak global cues, Indian equity market on Friday remained under pressure along with rising domestic Covid-19 infections which also weighed on sentiments."
3. Geopolitical tensions
Rising geopolitical tensions also hit global market sentiment today following news that US President Joe Biden directed US military airstrikes in eastern Syria against facilities belonging to Iran-backed militia, in a calibrated response to recent rocket attacks against US targets in Iraq.
As per analysts, the overall global consumer sentiment would play an important role in evaluating the short-term trend.
Ajit Mishra, VP - Research, Religare Broking pointed out while rising bond yields in the US have spooked investors, the geopolitical tensions between the US and Iran have also weighed on sentiments.
4. Banking stocks fall
Broader markets tracked underperformance from the banking pack as benchmark indices reversed the trend from three sessions of solid gains. Domestic markets hit new record highs last week on Tuesday. Last Tuesday, Sensex hit a record high of 52,516 and Nifty hit a lifetime high of 15,431. Sectorally, all the other indices ended with major losses. PSU Bank, private and financial indices declined around 4-5% today.
Profit booking in index heavyweights from all-time highs was seen, with heavy selling pressure in Axis Bank, Bajaj twins, ICICI Bank, Kotak Bank, SBI, HDFC twins.
Devang Mehta, Head Equity Advisory, Centrum Broking said," Indian markets have seen a stellar rally in the past couple of months due to strong foreign flows, improving macros & return of corporate earnings growth. The ingredients of a structural bull market remain intact for India. Such ebbs & corrections will provide opportunities for long-term investors to take advantage of volatility and accumulate quality businesses at reasonable valuations & price points."
Sumeet Bagadia-Executive Director at Choice Broking said," Banking and financial stocks led the fall as the Nifty Bank, Private Bank, PSU Bank and Financial Services indices all fell up to 5 per cent. Bank nifty, also showed weakness throughout the day as it closed the session at 34803.60 with a huge loss of 1745.40 points. On the technical front, the benchmark index has formed a Bearish Marabozu Candlestick Pattern which suggests further selling can be seen. Nifty has given a closing below 21 DMA which points out the weakness in it. Momentum Indicator RSI is also given below 50 level with a negative crossover which is a bearish sign. At the present level, Nifty has strong support at 14400 while upside resistance comes at 15000.
5. Technical outlook
Indian stock indices Sensex and Nifty ended with notable losses and settled around the day's low. During the week, the indices have corrected by 3%. However, both are up 1.5% in the last one month.
During the week, the indices have corrected by 3%. However, both are up 1.5% in the last one month.
Sellers outnumbered buyers. The market breadth, indicating the overall health of the market was negative on the BSE, with 1,020 shares rising, 1,902 shares falling and a total of 179 unchanged shares. The NSE's India VIX, a gauge of the market's expectation of volatility over the near term, gained 22.93% to end at 28.14. Investors lost Rs 5.41 lakh crore today, while the BSE's market capitalization fell to Rs 200 lakh crore.
Ashis Biswas, head of Technical Research at CapitalVia Global Research said,"The market witnessed a strong downward trend and a decisive break down below the support level around the Nifty 50 Index level of 14750. While a recovery above 14850 is the key to change the short-term bearish outlook, sustaining below this level market to gain downside momentum and open the gate for a movement until 14540. The momentum indicators like RSI, MACD to turn negative and market breadth to deteriorate significantly, further strengthening the view of a short-term bearish outlook."
Meanwhile, investors will also keep a lookout for the GDP numbers for the October-December quarter of the current fiscal, scheduled to be released later in the day.