Indian equities witnessed a sharp selloff on February 26 which dragged the benchmark Sensex lower by 2,149 points and made the Nifty go below 14,500 in the intraday trade. Banking and financial stocks led the fall as the Nifty Bank, Private Bank, PSU Bank and Financial Services indices all fell up to 5 percent.
At close, Sensex was 1,939 points, or 3.80 percent, down at 49,099.99 while Nifty was at 14,529, down 568 points or 3.76 percent.
Mid and small-caps outperformed their larger peers as the BSE Midcap and Smallcap indices fell 1.75 percent and 0.74 percent, respectively.
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"We are now in a see-sawing market moving up and down in response to positive and negative news. But the long-term texture of the market has been ' buy on dips' and this strategy has been rewarding in this bull run," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"Fed's declared commitment to inject liquidity and keep rates low through 2023 can ensure a buoyant market this year. So, investors can utilize opportunities thrown up by corrections to buy quality stocks in performing sectors," he said.
Here are 5 key triggers that triggered the selloff:
1. Rising bond yields
Rising bond yields seem to have eroded investor interest in riskier equities. Bond market cues often reflect in equity markets. After a bull run, the stock market has corrected in recent days, with both the Sensex and the Nifty falling from record highs.
As per media reports, US Treasury yields vaulted to their highest since the outbreak of coronavirus pandemic on expectations of a strong economic expansion and related inflation.
Not only in the US, but bond yields are also rising in many other top economies, including Japan and India.
2. Weak global cues
Most Asian markets traded lower after Wall Street's main indexes tumbled, following a steep rise in benchmark US Treasury yields.
As per Reuters, Australia's S&P/ASX 200 fell 2 percent in early trade, on track for the biggest intraday percentage loss since Jan. 28. Japan's Nikkei 225 was down 1.8 percent while Hong Kong's Hang Seng index futures lost 1.69 percent.
"The sell-off in the US market yesterday was the market's response to 10- year yield touching 1.6 percent. The Fed's interpretation of the rising yield is that it is discounting better growth prospects while the market typically discounts stock prices at a lower PE when interest rates rise," said Vijayakumar.
3. Caution ahead of GDP data
The NSO (National Statistical Office) will release gross domestic product (GDP) growth estimates for the third quarter (October-December) 2020-21 later today.
Many analysts have placed high chances on India’s real GDP growing at more than 0 percent in October-December 2020, marking a return to a positive trajectory after two-quarters of a deep slide.
4. Geopolitical tensions
Rising geopolitical tension also hit market sentiment globally. As reported by Reuters, "US President Joe Biden on Thursday directed US military airstrikes in eastern Syria against facilities belonging to what the Pentagon said were Iran-backed militia, in a calibrated response to recent rocket attacks against US targets in Iraq."
Ajit Mishra, VP - Research, Religare Broking pointed out while rising bond yields in the US have spooked investors' sentiments, the geopolitical tensions between the US and Iran have also weighed on sentiments.
Likhita Chepa, Senior Research Analyst at CapitalVia Global Research also underscored that the rising bond yield, oil prices and the US airstrikes on Syria led to the negative sentiments of the investors.
"Sensex has breached its immediate support level of 49,600. The volatility is also higher as it is 20 percent higher than the previous session. Day traders are advised to maintain a cautious stance. However, the broader direction of the market appears to be bullish," Chepa said.
5. COVID-19 remains a concern
With vaccination picking pace, Covid-19 is expected to come under control in the coming months but the pandemic remains an overhang on the market.
Today is the 338th day since India implemented a nationwide lockdown to help curb the novel coronavirus pandemic.
The daily rise in coronavirus infections in India was recorded above 15,000 after nearly a month taking the country's total tally of COVID-19 cases to 1,10,46,914, according to the Union Health Ministry data updated on Thursday.
A total of 16,738 infections were reported in a day, while the death toll increased to 1,56,705 with 138 daily new fatalities, the data updated at 8 am showed.
What do technicals indicate?
While the level of 15,100 is acting as stiff resistance for Nifty, the technical indicators are giving mixed signals and analysts are advising to wait for more clarity.
"The level of 15,100 acted as a stiff resistance yesterday and we were unable to close above that level. Traders should not take a position in either direction. We should evaluate the market on Monday. Due to the volatility, the stops are going to be large and hence the risk element is high. Hence, a fresh view should be taken in a couple of days," said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.
In the previous session, on the options front, the maximum Put OI was at 14,000 followed by 13,500 strike while maximum Call OI was at 16,000 followed by 16,500 strike. The data suggests a trading range between 14,700 and 15,400.
Brokerage firm ICICI Direct believes the recent healthy retracement has helped Nifty to form a higher base around 14,600 and paved the way for the next leg of an up-move.
"Any decline toward 14,600 should be capitalised on as incremental buying opportunity in the coming weeks as it is the 50 percent retracement of post Budget rally (13,662-15,432), at 14,550 and the panic low of February 22 is placed at 14,635," said ICICI Direct.
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