Sensex plunges 1,000 points, Nifty falls to 14,700: Five factors behind the market crash

Benchmark indices suffered heavy losses in the first half of Monday trade, as investors booked profit in auto, financial and banking stocks, tracking weak cues from Asian equities. Falling for the fifth straight session, the Sensex traded 1,010 points lower at 49,886 and NSE Nifty 50 index lost 270 points to 14,715.

Last Friday, Sensex ended 434 points lower at 50,889 and NSE Nifty 50 index fell by 137 points to 14,981.

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Here's a look at five factors that led to decline in Sensex and Nifty today:

1. Cautious trading in global markets

Stocks on Wall Street closed near break-even on Friday as investors booked profit on shares that rallied, making equity valuations look more stretched.

In the US, the House of Representatives will try to pass a $1.9 trillion coronavirus relief plan before the end of February, Speaker Nancy Pelosi said Thursday. Democratic Congressional leaders may try to pass a package without votes from Republicans."

In Asian markets, China's Shanghai Composite and Singapore's SGX nifty were trading 1.5% lower after China left its benchmark lending rate unchanged over the weekend. Similarly,analysts expects dovish comments from European Central Bank President Christine Lagarde's speech later on Monday.

Traders said investors gave importance to rising bond yields in the US and the outlook for inflation. Yields on 10-year Treasury notes have reached 1.38%, breaking the psychological 1.30% level and making a steep rise of 43 basis points for the year so far.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said,"As the last week of trading in February begins, there are some negative signals & news. The rise in the US 10-year bond yield to 1.36% reflects the markets' concern about a potential rise in inflation. The ultra-easy monetary policy along with the $1.9 trillion fiscal stimulus proposed by the Biden administration may trigger inflation, which has been conspicuous by its absence for long.

He added," Back home, the escalation in Covid cases in Maharashtra is emerging as a cause of concern. These concerns have impacted FPI flows to the market which, though positive, appears to be slowing down. Clear trends on these concerns have to be watched."

Further, equities took cues from rising oil prices. Brent crude, which gained 22% for the year so far, added another 66 cents at $63.57 a barrel, while U.S. crude added 51 cents to $59.75 on Monday.

2. FII inflows fall  

The crash in benchmark indices today can be attributed to the waning interest of foreign institutional investors (FIIs) in the Indian market. Fund inflows from FIIs have slowed in the last five sessions.

On February 15, FIIs purchased shares worth Rs 1,234 crore from the equity market. In the very next session, FIIs bought shares worth Rs 1,144.09 crore. On February 17, fund inflows from FIIs fell to Rs 1,008.20 crore.  The equity purchase fell to Rs 903.07 crore on February 18.  On February 19, FIIs bought shares worth Rs 118.75 crore from the Indian equity market, show NSE data.

3. Maharashtra stares at another Covid-19 lockdown

Profit-taking continued this week amid rising covid cases in Maharashtra. Fresh concerns of virus spread contributed to the fears that the economic impact will be much larger than earlier estimates.

Further, reports suggested that lockdown may be re-imposed in the financial capital of the country, Mumbai also kept investors at the edge.

Amid rising Covid -19 cases in Maharashtra, one of the worst affected states from the pandemic, Chief Minister Uddhav Thackeray has said religious, social and political gatherings will be prohibited in the state from Monday. Asking people to follow "Covid-appropriate" behaviour and safety norms, he said he would observe for a week to 15 days and then decide whether to impose another lockdown.

Maharashtra reported 6,971 fresh Covid-19 cases and 2,417 recoveries in the last 24 hours. As per the state health department, the total number of Covid-19 cases in Maharashtra reached 21,00,884. The number of active cases stands at 52,956 in Maharashtra.

4. Profit-booking

The market is overvalued and witnessed profit booking for the fifth straight session as global markets have aligned into a consolidation and correction mode. Last week, the indices corrected 1.5%. However, both are up 6% each since the beginning of the year. On Tuesday, Sensex hit a record high of 52,516 and Nifty hit a lifetime high of 15,431.

Markets maintained hitting record highs till last Tuesday, as local equities saw healthy inflows since the announcement of the Budget, amid sustained FII inflows and continuation of accommodative monetary policy.

Profit booking was expected after the rally in international markets to lifetime highs. On domestic grounds, markets are experiencing correction after significant gains made post the Union Budget and positive quarterly results. Sectors too saw profit booking in index heavyweights from all-time highs.

Except for metal, all sectors witnessed heavy selling pressure today, with the media index dropping over 3%, followed by a 2% fall in IT and PSU Banking and auto index.

5. Technical outlook

Sensex and Nifty were trading with notable losses, led by selling pressure in the auto and banking sectors. The broader mood of the market turned bearish last week, after a few days of the lacklustre movement.

As per analysts, the domestic market outlook lacks any major upcoming economic event and the overall global consumer sentiment would play an important role in evaluating the short-term trend. Most market analysts see further correction in markets, as investors are cautious about rising in Covid spread and inflation.

Sameet Chavan (Chief Analyst-Technical and Derivatives, Angel Broking) said," For the major part of the week, the market has been experiencing some pressure at higher levels and this is what we have been alluding to in our intra-week commentaries. Technically speaking, last week's high precisely coincided around the crucial resistance zone of 15380 -15500 (which is the 161% Golden Ratio of the entire fall from Jan'20 highs to March'20 lows). Hence, some sort of pause around it was quite evident. Although the market has come off a bit in the last three sessions, structurally there is no major damage done on the charts. It should merely be considered as a profit booking as of now. Going ahead, we need to keep a close eye on how Nifty behaves around its key support zone of 14750 -14550. Only a sustainable breach of these crucial levels should be considered as a short term trend reversal. On the flipside, 15100 -15200 would be seen as immediate hurdles and any bounce towards this is most likely to get sold into."

Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments said,"15100-15150 was short-term support that the index broke last week. We saw a quick slide of almost 200 points thereafter. Our next support is at 14800 and this would be medium-term support for the markets. If we need to continue the bull streak, we should not break this level. If we do, the Nifty could slide to 14400."

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Sensex falls 434 points, Nifty at 14,981: Five factors behind the market crash

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