The equity benchmark indices declined sharply on Monday amid rising geopolitical tensions in West Asia and a surge in crude oil prices, thus dragging market sentiment lower.
After losing over 900 points in day trade, the Sensex recovered some lost ground to close with a loss of 511.38 points or 0.62 percent at 81,896.79. During the day, it tumbled 931.41 points or 1.13 percent to 81,476.76. The Nifty dropped 140.50 points or 0.56 percent to 24,971.90.
Infosys, Shriram Finance, JSW Steel, Tata Consultancy Services and Wipro were among the major laggards, declining up to 3 percent.
Here are the key factors that led to the market fall:
1) Crude oil prices rise: Brent crude futures rose nearly 2 percent to trade at around $78 per barrel, while WTI crude gained 1.7 percent to hover near $75 per barrel. The surge came on back of US airstrikes on three nuclear facilities in Iran over the weekend. The move triggered concerns of supply disruptions after Iran’s parliament reportedly backed a proposal to shut the Strait of Hormuz, a key channel for global oil shipments. A rise in global crude prices is negative for India, which imports a major portion of its oil requirements.
2) Volatility index jumps: India VIX, the benchmark for market volatility, climbed 5 per cent to 14.34, reflecting increased nervousness among investors amid geopolitical uncertainty.
3) Geopolitical tensions: The US strikes on Iran’s Fordow, Natanz and Isfahan nuclear sites have escalated tensions in the region, drawing the country into the Israel-Iran conflict.
"Even though the US bombing of Iran’s three nuclear facilities has worsened the crisis in West Asia, the impact on the market is likely to be limited. The possibility of closure of the Strait of Hormuz has always remained a threat, but it has never been actually closed," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
4) Weak global cues: Asian markets were mostly in the red with South Korea’s Kospi, Japan’s Nikkei 225 and Hong Kong’s Hang Seng trading lower. The Shanghai Composite index edged slightly higher. US markets ended largely lower on Friday, and Wall Street futures were also in the red during Asian hours.
5) Rupee under pressure: The rupee weakened 17 paise to 86.72 against the US dollar in early trade, tracking gains in crude prices and a firmer greenback. A decline in domestic equities also weighed on the currency, according to forex traders.
6) IT stocks fall: The information and technology gauge Nifty IT sank over one percent after U.S.-based IT bellwether Accenture reported its earnings for the May quarter, flagging lower growth going ahead, along with rising uncertainties.
Technical view:
"Despite the sharp rise on Friday, the pullback from highs in the closing hour pointed to reluctance near the 25,000 mark, seen earlier as well," said Anand James, Chief Market Strategist at Geojit Financial Services.
"Upsides appear capped in the 25,200–25,460 range. With the Nifty near the upper Bollinger band and the ADX at 13.2, momentum is lacking. If the index fails to stay above 25,045, it may fall, though dips are unlikely to go beyond 24,865/24,827 for now. A slide below 24,500–24,440 will be a clear sign to reassess the trend," he added.
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