Sensex tanks 1,600 pts, Nifty below 21,600; 5 factors pulling the market down

Fund flows to Indian IT stocks set to rise on positive earnings surprise: Analysts

Domestic equity benchmarks- the Sensex and the Nifty reeled under selling pressure through the session to settle with sharp cuts of over 2 percent on January 17. The meltdown was triggered by a selloff in banking stocks led by the bellwether HDFC Bank.

At close, the Sensex was down 1,628.01 points or 2.23 percent at 71,500.76, and the Nifty was down 453.90 points or 2.06 percent at 21,578.40.

The overall market breadth tilted towards laggards as around two stocks fell for each one that rose. About 1,011 shares rose, 2,226 declined, while 48 remained unchanged.

Here are some of the major factors that triggered the meltdown:

1 Concerns over delay in rate-cuts

The sentiment was dented amid easing of rate-cut expectations after US Federal Reserve governor Christopher Waller warned that a pivot in the monetary policy may come slower than anticipated.

Following the hawkish comments, investors see roughly a 65 percent chance that the US central bank would begin its rate-cutting regime from March, according to CME Group’s FedWatch tool.

2 Spike in US bond yields and dollar index

The comments also led to a spike in yields on the US 10-year treasury bonds to back above the 4 percent along with a rise in the dollar index to a month's high.

3 Weak global cues

A hawkish Fed and the yield spike dented investor sentiment across the globe, resulting in a wide-spread fall. The three benchmarks in the US ended lower after resuming trading on January 16 after a market holiday. The Dow Jones Industrial Average fell 0.6 percent, while S&P 500 and NASDAQ 100 also settled lower.

Following the trend, markets across Asia-Pacific also struggled with selling pressure. Benchmarks in Hong Kong, Australia, South Korea and China were on course to close in the red.

4 HDFC Bank Q3 show disappoints investors

Shares of HDFC Bank were the worst hit, down over 8 percent after the lender's December quarter results continued to reflect pressure on net interest margin even though headline numbers met market expectations.

The stock has the highest weightage on the Nifty 50 at 13.52 percent and hence a selloff in the counter mounted pressure on the headline index.

To make matters worse, the selloff also rubbed off on other banking stocks,  with Kotak Mahindra Bank, ICICI Bank and SBI falling 2-4 percent. The Nifty Bank was also the worst-performing sectoral index, down over 4 percent.

5 Broad based losses

All sectors except information technology ended in the red. Metal names also saw selling amid a spike in the dollar index which dragged the Nifty Metal index over 3 percent lower. Automobiles, pharma, FMCG, energy, PSU banks and infra sectors also closed with losses of around 1 percent each

Weakness was also felt in the broader market. The Nifty smallcap and the midcap indices slumped over 1 percent each.

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Levels to watch

Analysts at SBI Securities said the correction could also be a sign of an elongated period of consolidation amid the earnings season.

"Going forward, from a short-term perspective, post the gap-down open, support is likely to be seen at the 21,700-21,730 level. In case the Nifty fails to hold onto 21,700, further fall towards the 21,550-21,510 zone will be on the cards," the brokerage said in a note.

In case of buying, the index is likely to meet with resistance in the 22,000-22,030 range. The uptrend will only resume after the Nifty decisively surpasses 22,220-22,280 points, the firm added.

Regardless, given that the uptrend in the market has deemed valuations as expensive, analysts see this correction as a much-needed one.

Also Read | Sensex, Nifty fall 1% led by HDFC Bank amid sour global mood; correction 'healthy', say analysts

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