Benchmark indices Nifty and Sensex plunged over 2.5 percent in trade, echoing the sour global sentiment as recessionary fears dented the mood.
At close, the Sensex was down 2,223 points or 2.7 percent at 78,759.4, and the Nifty was down 662.1 points or 2.7 percent at 24,055.6.
The US futures traded in the deep red with Nasdaq futures down over 2 percent. The Nasdaq entered the correction territory as the index is off 10 percent from all-time highs. In Asia, Japanese markets led the losses as the Nikkei and Topix fell as much as 7 percent.
Also Read | Nifty, Sensex see selloff amid global meltdown; volatility expected to continue
Let's look at the top factors that are drove the bears in trade today!
1. Recession Fears
There are fears of the US entering a recessionary phase, with an indicator known as the Sahm Recession Indicator flashing above the 0.5 mark, indicating the possibility of a recession. But what led to the indicator being triggered?
The US experienced a massive hiring slowdown in July, adding only 114,000 jobs, compared to the 215,000 jobs monthly average of last year. Additionally, unemployment has jumped to around 4.3 percent the highest since October 2021.
The rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy. However, with this faltering, all the factors combined contributed to a negative investor sentiment. The US markets toppled on Friday, seeing their worst day since 2020.
2. BoJ Policy
The US markets aren’t the only ones in a slump, Japan’s Nikkei 225 is also struggling, since the Bank of Japan raised its benchmark interest rate on Wednesday. The hike pushed the value of the Japanese yen higher against the U.S. dollar.
As a result of low interest rates, the Japanese Yen was used for a forex strategy called “carry trade.” This entailed borrowing in the Yen and investing in higher-yield assets. However with the BoJ raising interest rates, this might cause a lot of pain to forex traders employing the strategy, causing a further disturbance in the global markets.
3. Iran-Israel tensions
Tensions in the Middle East are surging as Iran, Hamas and Hezbollah have vowed to retaliate against Israel’s assassination of Hamas chief and Hezbollah’s military chief.
Any escalation in the Middle East would send oil prices surging. However, oil prices are currently at 8-month lows as demand wanes. Therefore, the Middle East will be closely watched for cues on crude prices.
"Geopolitical tensions in the Middle East also are a contributing factor. Another significant factor is the unwinding of the Yen carry trade which is bleeding the Japanese market. The crash in Nikkei by above 4 percent, " V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
4. Tepid Q1 show
Amid a poor deal environment, record heatwave and lacklustre demand, the earnings growth for the quarter ended June has been weak, falling around two percent on-year, according to Motilal Oswal.
For the 30 Nifty 50 companies that have reported their earnings so far, there is a 0.7 percent yoy growth but a 9.4 percent qoq decline in net profits. The aggregate performance was hit by a sharp drag from global commodities.
Heavyweights such as HDFC Bank, Tata Motors, ICICI Bank, Maruti, and TCS driving the aggregate. However, growth has primarily been led by the BFSI and Auto sectors.
5. Absence of fresh near-term triggers
Investors were looking towards the earnings season, the Budget, and the US Federal Reserve to provide further cues to the markets. However, with all of these completed, the markets are lacking any fresh triggers that could drive momentum.
"Two negative factors prevail: a lack of significant positive surprises in Q1 June earnings from Corporate India and overbought technical conditions," says Prashanth Tapse, Senior Vice President at Mehta Equities. "Volatility will be the hallmark of the day," he added.
Among sectors, Nifty Auto, Realty, and Metal were the worst hit, tanking almost 3 percent each.
On the bourses, only Sun Pharma and HUL were the top gainers on the Nifty. Tata Motors, Hindalco, Shriram Finance, Tata Steel and ONGC were the laggards.
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