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Budget 2018
Feb 06, 2018 06:56 PM IST | Source:

Investors lose nearly Rs 2.69 lakh cr wealth; 5 factors weighing on markets

The Nifty50 slipped below its 100-days exponential moving average (DEMA) placed at 10,400. A fall below 10,200 could stretch the decline towards 10,000 levels which is closer to its 200-DEMA.

The S&P BSE Sensex suffered a 1,275-point drop on Tuesday following a sharp crack on Wall Street. The index witnessed its biggest intraday fall since the year 2015.

Investors lost around Rs 2.69 lakh crore wealth amid sell-off in the broader market today.

The Nifty50 slipped below its 100-day exponential moving average (DEMA) placed at 10,400. A fall below 10,200 could stretch the decline towards 10,000 levels which is closer to its 200-DEMA.

A sharp fall in global stocks extended to D-Street which was already already reeling under pressure from implementation of long-term capital gains tax (LTCG). D-Street is hoping for a rollback of the measure proposed by the Finance Minister in the Budget 2018.

The proposed long-term capital gains tax on equity holdings will apply to profits made from the sale of shares on or after April 1, 2018, the government said on Monday.

At an industry event, Finance Secretary Hasmukh Adhia said the sell-off in equity markets was due to a weak global sentiment and not because of long-term capital gains tax re- introduced after 14 years.

Long-term capital gains exceeding Rs 1 lakh from sales of shares made on after April 1, 2018, will be taxed at 10 percent. However, there will be no tax on gains accrued up to January 31, 2018, it added.

We have collated a list of top 5 factors which might be weighing on markets:

Wall Street erases gains of 2018:

Wall Street suffered the biggest intraday drop in history as Dow plunged nearly 1,600 points. Fears about the rise in bond yields and US Fed could raise interest rates faster than expected weighed on the sentiment.

There is clear indication of market churning where money is moving from one asset class to another. The valuation of US markets doesn’t seem to lend comfort to investors. The sell-off in US stock markets on Monday was a continuation of Friday's weakness as investors rushed for the exits in the wake of rising interest rates.

“The market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years,” said a Reuters report.

The CBOE Volatility index (VIX), widely considered the best gauge of fear in the market, hit 37.32, up 115.60%.

As the stock market fell on Monday, the White House said the fundamentals of the US economy are strong. US economic growth was running at a 2.6 annualized rate in the fourth quarter last year and the unemployment rate was at a 17-year low of 4.1 percent, the report said.

With Monday’s declines, the S&P 500 erased its gains for 2018 and is now down 0.9 percent in 2018. The Dow is down 1.5 percent for the year.

Asian Markets trade lower:

The rout on Wall Street was seen across Asian markets as well. Japan's Nikkei 225 was down 6.71 percent, or 1,522.70 points, as stocks across sectors pulled back. Automakers, financials, and technology names were lower in the morning, with Toyota down 4.75 percent.

Rise in Cost of Capital:

Concerns about rising bond yields in the US, and higher inflation fuelled worries about the rise in interest rated by US Federal Reserve at a faster pace than expected this year. There is an inverse relationship between the stock prices and bond prices.

Rise in cost of capital globally is also something which is fuelling the bearishness, say experts. That higher cost of capital will discourage investment, just as lower tax rates and perhaps an improved outlook for growth are encouraging it, said a report.

“We have been worried about the rally not just in India but globally which is largely driven by the cost of capital. I want to also highlight that Nifty might well erase gains made so far in the year but if we look at other markets in Asia such as China or Hong Kong are still up for the year,” Sanjay Mookim, BofAML said in an interview with CNBC-TV18.

“The cost of capital will go up and the environment of easy liquidity will have to be withdrawn. Even in India, we will see good quarters in terms of earnings growth, said Mookim.

Technical Factors:

The Nifty50 broke below its crucial support placed at 10,500 and the next big support for the index is placed near 100-DEMA placed at 10,400 levels and 200-DEMA which is placed around 10,024.

At 11:00 AM, strong Put writing was seen at strike prices 10,000 strikes (10 lakh contracts added), followed by 9900 (8 lakh contracts added), 10,200 (5 lakh contracts added), and 10,300 (8.6 lakh contracts added).

Analysts advice investors to remain cautious and avoid high beta names. When the market is falling, the low PE or defensive stocks such as utilities, IT, material sectors tend to do well. Commenting on midcaps, Mookim said this is not the time to buy midcaps.

According to Pivot chart, the first support for the index is placed at 10,280 followed by 10,204.

"Key resistance level that stands out is what was a major support util now is 10450. A close above this might signal the end of the current bout of selling," Kunal Saraogi, CEO told Moneycontrol.

"Support exists at 10100. This level is pretty important and save a major meltdown is likely to hold. There are no credible supports between 10100 and 10450," he said.

Margin Requirement:

Stock exchanges may call for early margin funds if the sell-off in the market intensifies, sources told Moneycontrol.

Stock exchanges collect a margin on outstanding positions as a risk management measure. The amount varies depending on the risk perception of the exchange on a particular stock/derivative or on the market as a whole.

The stocks which have a history of sharp moves on either side are subject to higher margins compared to those which are comparatively more steady.

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