Dalal Street woke up to Monday blues as the S&P BSE Sensex tanked over 500 points intraday, while broader Nify50 slipped below its crucial 8,750 level tracking weaker trend seen across the global markets.
The benchmark indices may have recovered slightly as the session progressed, but broader sentiment remained negative with all the sectoral indices barring IT index trading in red.
"Market behaviour in the coming months is hard to predict. If there are no negative news, the market is likely to consolidate and then move ahead with normal corrections. On the other hand, if an external factor which can trigger capital outflows happen, there will be a sharp correction. Investors have to be vigilant," said V K Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas.
We have compiled six factors that may have driven the fall on Dalal Street:
1) Odds on Fed hike strengthen:
On Monday, the odds on US Federal Reserve raising interest rates in the US as early as September rose to 57 per cent from 53 per cent, following hawkish comments from US Federal Reserve officials late last week. Boston Federal Reserve President Eric Rosengren on Friday said the US economy could overheat should policymakers wait too long to tighten the monetary policy, but he also added that long-term headwinds to economic growth mean the central bank should consider raising rates only very slowly.
2) Sea of red across global markets
Taking cues from over 100 points fall on Dow futures, Asian markets along with domestic market edged lower this morning. China's Shanghai Composite lost over 2 per cent, Hong Kong's Hang Seng index dipped 3 per cent, while Japan's Nikkei was down 1.84 per cent. On Friday, US markets moved sharply lower. The Dow and the S&P 500 tumbled to two-month closing lows, while the Nasdaq hit its lowest closing level in well over a month.
3) Below average monsoon
The monsoon weakened in most parts of the country, taking the overall seasonal rainfall to 5 per cent below normal against the forecasts of 5 per cent above normal rainfall by most of the weather agencies. The data turned out to be sentimentally negative as partial patches have seen very poor rainfall.
4) Profit-booking in auto and banking stocks
The fall in the benchmark indices was led by losses in banking and auto stocks as investors booked profits after a smart rally, witnessed early last week, in these counters. Axis Bank, SBI and ICICI Bank fell up to 4 per cent, while Tata Motors, Hero MotoCorp and Mahindra & Mahindra fell up to 3 per cent.
5) Technical charts
Nifty index had kept the upward momentum with just kissing distance away from the old high prices. Jimeet Modi, CEO, SAMCO Securities said generally market takes a breather at or around the old highs in the form double top. He added that the risk to rewards is not in favour of the bulls currently unless Nifty validly pierces its old highs of 9119.
"8,750 on the Nifty now stands as a strong support in the upcoming week. Only a sustainable move below this level could trigger further weakness in the market. On the flipside, 8,939-8,970 are seen as immediate hurdles for the index," said Angel Broking in a research note.
6) IIP and inflation data awaited
Investors turned cautious ahead of macroeconomic data - IIP for July and inflation data for August - scheduled to be released later in the day. A Reuters poll said consumer inflation is expected to have eased to a four-month low in August, helped by smaller rises in food prices, while annual growth in industrial output is expected to have decelerated to 1.7 per cent in July from June's eight-month high of 2.1 per cent.