Sensex falls 400 pts from day's high, Nifty below 25,550: Five key factors behind market trimming gains

Sensex falls 200 pts from day's high, Nifty near 25,550: Four key factors behind market trimming gains

• Sensex and Nifty trimmed gains after early 0.8% rise
• Geopolitical tensions and higher crude prices weighed on markets
• IT stocks fell for third session, led by Persistent and Infosys

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Benchmark indices Sensex and Nifty saw significant profit booking during afternoon trading on February 20 after they rose nearly 0.8% earlier in the day. Sensex fell 400 pts from day's high while Nifty was trading below the 25,550 level.

At 1:16 pm, the Sensex was up 238.15 points or 0.29% at 82,736.29, and the Nifty was up 94 points or 0.37% at 25,548.35. About 1,800 shares advanced, 1,897 shares declined, and 174 shares were unchanged. Sensex's intraday high was 83,132.08 while that of Nifty was 25,663.55.

Hindalco Industries was the top gainer among the Nifty 50 constituents, up nearly 3%. Shares of its peers, Tata Steel and JSW Steel were up nearly 2% each. Shares of financial Services companies Bajaj Finserv, SBI Life Insurance Co., Bajaj Finance, Kotak Mahindra Bank, and Axis Bank were up around 1% each. Shares of Hindustan Unilever, Larsen & Toubro, and Bharat Electronics were up 1–2%.

In contrast, IT companies Tech Mahindra, Infosys, HCL Technologies, and Wipro were the worst hit stocks in the index, down 1% each. Shares of Eternal, Mahindra & Mahindra, and Grasim Industries fell around 1% each as well. Shares of Tata Consumer Products, HDFC Life Insurance Co., and Bharti Airtel gave up earlier gains and fell 0.2-0.5%.

Among the broader market indices, Nifty Midcap indices were up 0.3–0.4%. The Nifty Smallcap 50 was 0.1% higher but the Nifty Smallcap 150 and Nifty Smallcap 250 were down around 1%. The Nifty Midcap 150 which rose nearly 0.2% was supported by the stock of Apar Industries, up nearly 5%.

Here are four factors behind market trimming gains:

1. Geopolitical tensions

US President Donald Trump warned Iran on Thursday that it must make a deal over its nuclear program or "really bad things" will happen, and set a deadline of 10 to 15 days, drawing a threat from Tehran to retaliate against US bases in the region if attacked.

Brent crude oil prices rose to $71.87 per barrel on Friday, extending their three-day gains to 6.6% amid tensions in the key oil-producing region.

Higher crude prices are a negative for India as it is the world's third-largest crude oil importer.

2. FII, DII selling

On February 19, both foreign and domestic institutional investors were net sellers of Indian equities on Thursday, offloading Rs 880 crore and Rs 596 crore worth of shares, respectively.

3. Weak rupee

Rupee was trading at 90.95 against US dollar, down 28 paise. It settled at 90.6675 on Wednesday.

Trading in currency markets were shut on Thursday due to a local holiday in Mumbai.

4. IT selloff

IT shares continued to decline for third straight session on February 20 with Persistent Systems, Infosys, Mphasis leading the losses by falling 1.2%-2.6%.

The Nifty IT index is down nearly 2.5% this week so far, and is most likely to close with losses for the sixth straight week in a row, making this the longest losing streak in nearly four years.

"The sharp spike in Brent crude to $72 reflects growing fear and uncertainty in markets. President Trump’s warning that “Iran has 10 to 15 days to strike a deal or bad things happen “ has put the markets on tender hooks. Whether there will be a deal after the standoff, or whether missiles will fly  will determine the market behaviour in the near-term. The continuing weakness in IT stocks is another dampener for the market," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

5. India VIX rises 7.5%

Market volatility increased as India VIX surged 7.65% to 14.49, highlighting rising uncertainty and nervous sentiment among market participants.

Technical View

"Technically, Nifty formed a strong bearish marubozu candle, engulfing the previous two sessions, signaling aggressive distribution. The daily RSI has turned negative and slipped below its reference line, reinforcing a bearish bias," said Axis Securities.

"With the index closing below the key support level of 25,500 on February 19, the near-term bias appears weak, and there is potential for a decline toward the 25,000 mark in the short term. On the upside, immediate resistance is seen around 25,800," said Rupak De, Senior Technical Analyst at LKP Securities.