5 factors that dragged Sensex over 150 pts, Nifty below 11,500

Bears took the charge of Dalal Street on very first day of the week with the market erasing some of last week's gains.

The Sensex corrected over 150 points and the Nifty breached 11,500 levels intraday, dragged by selling across sectors, barring IT. Indices had rallied more than two percent last week.

The 30-share BSE Sensex after recouping 266 points from day's low ended at 38,667.33, down 155.24 points and the 50-share NSE benchmark index fell 37.90 points to 11,474.50, but it had fallen below 11,400 levels intraday.

The market breadth was also in favour of declines. More than two shares fell for every share rising on the BSE.

The broader markets wiped out all its gains seen in previous week and underperformed benchmarks with the Nifty Midcap and Smallcap index falling over 1.5 percent each.

Here are five key factors that weighed on market:

US-China trade worries
The trade spat between the world's largest economies -- US and China -- which has been going on for over one-and-half-year now, continues to be a talking point.

The Trump administration is considering limiting US portfolio investments in China and delisting Chinese companies from US stock exchanges as part of a broad effort to limit US investment in Chinese companies, reports Reuters.

The move comes as a surprise, especially after Trump's recent comments at the United Nations, saying the trade deal between US and China could happen 'sooner than people think'.

Hence, all eyes are on the meeting between officials of world's largest economies, which is scheduled to resume on October 10.

Auto sales
The street is cautious ahead of September automobile sales numbers, which will be released on October 1.

Overall sales are expected to remain weak, though analysts feel there has been some increase in inquiries and footfalls towards the end of month, especially after the inauspicious Shraadh period.

The Nifty Auto index itself fell 1 percent today with Ashok Leyland being the biggest loser, falling more than five percent. M&M, Hero MotoCorp, Tata Motors, Maruti Suzuki and Bajaj Auto were down 1-2 percent.

After the government cut the corporate tax rate many companies started to offer discounts, which are at a record high now. Companies are also increasing advertising and promotional activities.

This seems to have boosted sentiment on the ground and as a result walk-ins and footfalls at dealers improved in September. However, experts feel the overall slowdown could continue for some more time as September sales de-growth could be in double-digit.

"We expect volumes across segments, excluding tractors, to decline by double-digits. Slow economic growth, inauspicious Shraddh period and floods in select regions are likely to impact wholesale sales," Sharekhan said in a recent note.

It sees the commercial vehicle (CV) and passenger vehicle (PV) segments affected the most with volumes likely to drop 40 percent YoY (versus a 41 percent in August) and 26 percent YoY (33 percent fall in August) in September.

RBI interest rate moves
The market could trade cautious ahead of the Monetary Policy Committee (MPC) meeting scheduled for later this week.

Most experts expect the central bank to cut the repo rate by 25 bps (some expect a 35-40bps cut). But the key thing to watch out for would be growth projections and commentary, especially after the corporate tax rate cut.

The Reserve Bank of India, so far in 2019, has reduced the repo rate by 110 bps to 5.4 percent.

Analysts in a Moneycontrol poll voted for a rate cut in October, but do not expect it to go below 4.30 percent in the near future.

After tax rate cut on September 20, RBI Governor Shaktikanta Das said India cannot lower its interest rates to the level of advanced economies. However, he was quick to add that the central bank could do more to spur growth as inflation is within its target of four percent.

Sell-off in banking and financials
Banks fell the most among sectoral indices with the Nifty PSU Bank dipping 3.5 percent, Private Bank index down 2.7 percent and Bank Nifty down 2.6 percent.

The sharp fall indicates caution ahead of three-day RBI policy meeting scheduled to begin on October 1.

Technical viewThe Nifty recouped more than half of losses and closed 0.3 percent lower, forming Hammer kind of pattern on daily charts as decline was being bought into the market but at the same time supply is intact at higher zones

As the Nifty defended its support of 11,400 levels, if it index shows upside in in coming session then there could be further rally which could take index to 11,600-11,700 levels.

"Nifty50 continued its corrective and consolidation phase into the 5th trading session before smartly recoiling from the intraday lows of 11,390, after testing its 100-day moving average (11,408) which resulted in a Hammer kind of formation. As of now there appears to be multiple support points around 11,400 levels and hence, in next trading session if the index manages a positive close then it shall have bullish connotations going forward which should eventually pave the way for a breakout above 11,695 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.