Why Sensex tanked 1,250 points in early trade today

Benchmark indices crashed in early trade today in line with weak global cues.  Sensex tanked 1,268 points to 57,565 and Nifty lost 387 points to 17,171. All 30 Sensex stocks were trading in the red in early trade. Tech Mahindra, Infosys, HCL Tech were the top Sensex losers. Shares of Reliance Industries were trading 0.57 per cent lower at Rs 2,603 ahead of the firm's 45th AGM to be held during market hours today. The weakness in the market came after US markets plummeted following Fed chief's ultra-hawkish tone. Jerome Powell said the Fed will likely need to keep interest rates high enough to slow the economy "for some time" in order to beat back the high inflation sweeping the country.

The statement triggered a sell-off in the US market with Dow Jones Industrial Average sinking more than 1,000 points intraday on Friday. It ended 1,008 pts lower at 32,283.

Share Market Live: Sensex tanks 1,250 pts, Nifty below 17,200 amid weak global cues

Nasdaq too ended 497.55 points lower at 12,141. S&P 500 closed 141 points lower at 4,057.

Uday Kotak, CEO, Kotak Mahindra Bank said the tough stance of US FED Chairman reminds us of Paul Volcker who broke the back of US inflation in 70s/80s.

The central bank indicated it would raise rates into next year to quell demand and bring down prices for goods and services. However, the statement was against market expectations that the central bank might pause or even reverse course next year if inflation subsides.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "Markets expected Powell to remain hawkish at Jackson Hole but the ultra-hawkish tone of the Fed chief's message and his warnings that Fed's policy will "cause some pain to households and businesses"  and this is "the unfortunate costs of reducing inflation" were not expected and factored-in by the markets. The 17% rally in S&P 500 from mid June to mid August was mainly driven by expectation that with declining inflation Fed would pivot towards lower interest rates by early 2023. This expectation has been belied by Powell's message that rates will go up and remain there for 'sometime'. The sharp rise in the Dollar index above 109 and the 10-year bond yield spiking to 3.1 % are negative for capital flows to EMs like India. FPIs are unlikely to continue buying in India in this scenario. The 'buy on dips' texture of the market is unlikely to hold. Investors should not rush in to buy the dips now. Better wait for the dust to settle."

The crash in the US market reflected in the weak opening in the Indian market today.

IT, banking, metal and oil and gas shares were the top sectoral losers with their BSE indices falling 1,058 points, 787 points, 424 points and 455 points, respectively. BSE mid cap and small cap indices fell 339 pts and 338 points, respectively.

Market breadth was negative with 818 stocks trading higher against 2,183 stocks falling on BSE. 151 shares were unchanged. Market cap of BSE-listed firms fell to Rs 273.69 lakh crore today against Rs 276.96 lakh crore in the previous session.

Arijit Malakar, Head of Retail Research at Ashika Group said, "The markets across the globe are under pressure as US Federal Reserve maintained its aggressive stance to tame inflation. Last week at Jackson hole symposium, Fed Chair Jerome Powell dismissed any notion of a dovish tilt by the Fed, and warned that US consumers and businesses would have to contend with higher interest rates as inflation rises. The Fed Chair also said that economic growth in the country would likely slow as a result. Such, hawkish statement by Federal Reserve, sent dollar to 20-year high against other currencies and that sparked the sell off in the markets. Now, the investors are expecting Fed to hike rates by 75 basis points- the upper end of forecasts- in September. Comments from several Fed officials suggest that US interest rates could end the year significantly above 3 per cent, from the current rate of 2.25 to 2.5 per cent. Hence, market is expected to remain jittery on the back of negative global cues and investors should follow the cautious approach while initiating fresh buys."

Foreign institutional investors remained net sellers on Friday as they sold shares worth Rs 51.12 crore, as per exchange data.

Meanwhile, rupee fell 26 paise to 80.10 against the US dollar in early trade.

Pranit Arora, co-founder and CEO of Univest said, "On August 26, the Fed chair foreshadowed a further interest rate hike to fight rising inflation and also raised concerns regarding the recession. Further rate hikes will reduce market liquidity, and global markets have reacted negatively to this sentiment. The US indices were 3–4% down, and Asian markets were also down by 2% earlier today, and thus Sensex also saw a gap down opening today. Today, the Nifty opened at 17188, made a low of 17166, and bounced back from its support level of 17160. Nifty has a strong demand zone between 16660 and 16780, and if Nifty sees any retracement from here, one can start accumulating stocks between these levels. Also, the Nifty has strong resistance at 17730 and if we see a close above this, we can expect a bullish rally from there."

Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One said, "US Fed chairman's speech on Friday with respect to rate hikes and inflation spooked the market participants across the globe. Since our markets had not reacted to this, the trading week started with a massive gap down. With this sharp cut, Sensex has challenged its last week low. Now more than the opening, today's closing point is very important in order to confirm the next path of action. Below 58,000, one should get prepared for some more pain. For bulls to remain in hunt, 57,000 needs to be defended successfully and to regain strength, a close above 58,500-59,000 is required."

Previous Session

Benchmark indices managed to end in the green on Friday despite fag-end volatility trimming most of the day's gains. Sensex climbed 59.15 points or 0.10 per cent to end at 58,833.87. During the day, the 30-stock index jumped 546.93 points or 0.93 per cent to 59,321.65. Nifty gained 36.45 points or 0.21 per cent to end at 17,558.90.