Five reasons why Sensex tanked over 400 pts on Thurs

Moneycontrol BureauIndian markets today fell sharply, with the Nifty taking out the key 8,600 level with ease while the Sensex broke below 28,000.While it is too early to say if this is a firm trend reversal, the Nifty has now retreated from a recent top of nearly 8,900 to about 8,575 now, signally a pretty deep cut to equities.Many analysts say the fall was coming. They point to several reasons that have likely led to the correction. Some also believe that the full brunt of the market fall is not yet played out and that there could be legs to the correction.Below are six reasons why markets are in a corrective phaseHigh valuationsA real turnaround in earnings has been tipped to be around the corner for two years now but it still has to pan out. In the absence of an earnings pick-up valuations have now started looking expensive.With an expected earnings-per-share of about Rs 1,500 for the Sensex, it was trading at over 19 times FY17 earnings when it was at 29,000 earlier last month. The historical mean for the Sensex price-to-earnings is close to 16 times.Q2 nervousnessMarkets have continued to held out hope that the second quarter will be better than the first, and the second half of the year better than the first. So it's not surprising that the market is nervous going into the earnings season, which kickstarts today after TCS reports its numbers in the evening.The nervousness is also palpable globally. "So far the earnings have come do not show in an upward-trending global economy," Bruno Verstraete of Lakefield Partners told CNBC-TV18, even as he said that global growth would be slow but steady and earnings are unlikely to fall off a cliff.European bank problemsThere has been a rising worry over the health of various European banks. Recent news over the leading financier Deutsche Bank has led some analysts to wonder if a full-scale banking crisis is in order on the continent.DSP BlockRock CIO S Naganath listed the European banking problems as one of the key reasons why he expects global markets to stay volatile in the second half of the fiscal.US elections"The upcoming US elections are clearly a worry. We all know polls can do after [they got it wrong during] Brexit," said Bruno Verstraete of Lakefield Partners.US stocks generally tend to more favourably pre-disposed towards Democratic presidents, due their perceived free-spending nature. In the US, Republican candidate Donald Trump has already added to jitters by stating he would scrap a number of free trade treaties if elected.So it is not a surprise that the market gyrates to any swing in US public opinion on the presidential candidates.Fed rate hike talkDespite talk of a global slowdown, the US economy continues to be fine shape and a pick-up in growth there and fall in unemployment has led to the belief that the Federal Reserve will have no way but to raise interest rates."The markets are now pricing in a high probability of a December rate hike," said Naganath.