Sensex tanks 790 points, Nifty below 22k: Key factors that dragged D-St lower

Bears were back on Dalal Street on Wednesday as the headline indices saw profit booking during Wednesday's session. Domestic equity markets cracked sharply, giving up early gains. The selling pressure was intensified in the second half of the session on the back of global and domestic cues.

BSE's Sensex gyrated in a tight range of 1,000 points, but finally settled at 72,304.88, slipping 790.34 points, or 1.08 per cent, for the day. NSE's Nifty50 index breached 22,000 marks as it tumbled 247.20 points, or 1.11 per cent, to end the session at 21,951.15. Broader markets underperformed as BSE midcap and smallcap indices dropped 2 per cent each for the day.

The movement of the stock market is complex and vulnerable to several influences. Corrections in the market are common. Investors with long-term horizons may see this as a buying opportunity. There can be brief selling pressure as a result of investors taking profits following large gains, said Pravesh Gour, Senior Technical Analyst at Swastika Investmart.

"The market may have declined as a result of foreign institutional investors selling off large quantities of Indian stocks. The market became nervous before so many economic indicators such as GDP data, PCE price index data and manufacturing PMI numbers in the US. The US government will partially shut down on March 1st without a spending bill," he added.

Here are the key factors that dragged the headline indices lower during Wednesday's trading session:

Inflation numbers
Traders across the globe will be waiting for inflation numbers of the US and Europe later this week for the rate cut cues, expected later this year. Investor's focus was on the US personal consumption expenditures price index for January, due on Thursday. However, the US central bank Federal Reserve has signaled that it is in no hurry to cut interest rates.

India's GDP numbers
Back home, market participants are awaiting the gross domestic product (GDP) data for October-December quarter due on Thursday. India is expected to report a strong quarterly growth, better than global peers, which will support the trader's sentiments on Dalal Street.

Vaibhav Shah, Fund Manager, Torus ORO PMS expects Q3 GDP may show some signs of deceleration. Even MPC in their last meeting signaled some deceleration compared to Q2 GDP. "However, we are confident that the overall real growth of 7 per cent will be achieved leading to India becoming one of the fastest growing economies in the world," he said.

Selling in index heavyweights
Selling pressure in index heavyweights such as Reliance Industries, ICICI Bank and HDFC Bank dragged the headline indices lower. These three countries contributed about 350 points in the 790 points fall on the BSE Sensex. Power Grid, Larsen & Toubro and Mahindra & Mahindra contributed the next 130 points.

Massive profit-taking across the board was seen as benchmark Sensex closed below the crucial 73,000 mark, said Prashanth Tapse, Senior VP (Research), Mehta Equities. "There will be strong bouts of intra-day volatility going ahead as the wait for interest rate cuts is getting longer, and hence investors are taking selective bets in view of the already stretched valuations."

FIIs selling
Provisional data available with NSE suggest that FPIs turned net sellers of domestic stocks to the tune of Rs 1,509.16 crore on Tuesday. On the other hand, domestic institutional investors (DIIs) turned net buyers of Indian equities to the tune of Rs 2,861.56 crore. FIIs have sold equities worth Rs 24,872 crore in the year 2024 so far.

FIIs have sharply reduced their selling this month and have turned buyers to the tune of Rs 872 crore, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.. "This indicates that FIIs are unlikely to press big selling pulling the market sharply down. Because of this favourable market construct, dips are getting bought, aided by sustained flows into the market."

Weakness in the global market
World stocks eased on Wednesday as traders held their fire ahead of a US inflation reading later this week that may influence the timing of the Federal Reserve's easing cycle. European stocks dipped 0.1 per cent, with lacklustre corporate earnings weighing on sentiment, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent.

"Indian markets were jittery, mirroring weak global markets. Global investors are awaiting the key US economic data like personal consumption expenditure, in anticipation of a good forecast there is a fear that Fed rate cut may be delayed, said Vinod Nair, Head of Research, Geojit Financial Services. "Turmoil in China's property sector further impacted the Asian market trend," he said.

Firm US dollar
The dollar firmed up on Wednesday as markets awaited a raft of global inflation data for clues on when central banks may start easing policy, while the New Zealand dollar tumbled after its central bank trimmed its forecast for a peak in rates. The dollar index was last up 0.3 per cent at 104.20.

Technical Outlook
The Nifty 50 index continues to observe selling pressure around 22,000 - 22,250 levels, which appears to be a selling pressure zone. The session ended on a downbeat note, with the index settling around 21,950-mark, said Avdhut Bagkar Technical and Derivatives Analyst, StoxBox.

"During the day, the index failed to scale over 22,100 post a share decline breaching key support of 22,150. Derivative data revealed a shift in momentum from CE to PE near the monthly expiry, with open interest witnessing increased strength in weakness. Heavy writing was seen in 22,100 CE and 22,200 CE," he said.

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