Sensex settles 173 points lower, Nifty closes below 25,250: US-China tariff worries among key factors behind market fall

Trump on Friday announced that he would impose an additional 100 percent tariff on imports from China, as well as export controls on critical US-made software. This sent the US tech stocks like Nvidia, Tesla, Amazon and Advanced Micro Devices shares down.

Indian IT stocks accompanied their US peers on Monday when markets reopened. The Nifty IT index was down more than 278 points (0.78 percent) to 35,330.80. Heavyweights Infosys and Wipro shares were down over 1.4 percent each.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, however dismissed worries. "Stability appears to be returning to global stock markets, after the Friday sell off triggered by President Trump’s threat to impose additional 100% tariff on China, thereby reigniting the US- China trade war. Latest comments from President Trump indicate that he is chickening out as he had done many times earlier. Particularly, his remark, “don’t worry about China” indicate that the feared trade war may be averted. Recovery in US futures indicate that the market is not unduly worry about the latest developments. Chances are that this sabre rattling by the world’s two largest economies is temporary," he said.

"Domestic consumption themes which will not be impacted by the trade skirmishes are likely to witness accumulation by institutional buyers," he noted.

"Since the U.S. and China are the largest economies in the world with strong links with the rest of the world, global equity markets will be hurt in the short term," G Chokkalingam, founder and head of research of Equinomics Research told Reuters.

However, Indian markets could largely avoid the global downturn if the U.S. refrains from extending its tariff war to India, which might prompt a tactical shift of foreign inflows from China to India, Chokkalingam said.

Rising trade tensions between the world's two largest economies could fuel inflation in the U.S. and force the Federal Reserve to delay interest rate cuts.

High U.S. rates do not bode well for emerging market equities such as India as they make dollar and Treasury yields attractive for global investors.

Profit booking

The fall in the stock markets may have also been driven by profit booking. Last week, Sensex and Nifty recorded their best weekly performance in around three months. Sensex gained more than 1,253 points (1.6 percent), while Nifty 50 rose over 391 points (nearly 1.6 percent) during the week. Nifty 50 crossed the 25,300-mark on Friday for the first time since September 22 this year.

Investors may have now resorted to profit booking at these elevated levels, leading to a fall in the share prices.

India VIX

India Vix, which reflects near-term volatility, jumped more than 11 percent to 11.25 on Monday. This signals caution among investors amid trade tensions. This may also have led to the fall in stock prices.

Speaking about what remains the key levels to watch out for, Puneet Singhania, Director at Master Trust Group said 25,000–24,900 zone remains a critical support on the downside. PL Capital meanwhile said that the support for the day was seen as 25,150.

Gold prices rise

After few sessions of recording losses, gold has resumed its record bull run. Gold futures on MCX with December expiry hit a fresh lifetime high of Rs 1,23,680 per 10 grams today. The other future contracts also recorded sharp gains, rising more than 1 percent each.

The rise in gold prices indicate the shift in investor interest from risk prone stock markets to safe haven assets like the precious metals. This may have further fueled the fall in the stock markets.

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