Sensex settles 300 pts lower, Nifty ends below 25,950: Rising India Vix, 5 other key reasons behind market decline

Stock Market Today: Sensex, Nifty declined as trading volumes remain thin due to subdued year-end participation.

The benchmark equity indices Sensex and Nifty gave up early gains and slipped into the red in thin year-end trade on Monday, dragged down by continued foreign fund outflows and higher crude prices.

Extending the downtrend to the fourth day running, the Sensex declined by 345.91 points or 0.41 percent to settle at 84,695.54. During the day, it dropped 403.59 points or 0.47 percent to 84,637.86.

Registering its third day of decline, the Nifty edged lower by 100.20 points or 0.38 percent to 25,942.10.

Adani Ports and Special Economic Zone, Power Grid Corporation of India and Shriram Finance were among the major laggards in the Nifty50 pack, declining up to 2 percent, while Tata Steel and JSW Steel were the key gainers, rising up to 3 percent as metal shares rose due to surgning metal prices in international markets.

Key reasons behind the market decline

1) Thin year-end trade volumes: The investors remained cautious amid low trading activity towards the end of the year. The Nifty50’s average daily trading volume in December stood at about 250 million shares, down from 300 million shares in November.

"With the holiday season and calendar-year close, trading volumes remain thin due to subdued year-end participation, keeping markets muted," Aakash Shah, research analyst at Choice Broking told Reuters.

2) Persistent FII selling: Foreign Institutional Investors (FIIs) sold equities worth Rs 317.56 crore on Friday, marking the fourth consecutive session of net outflows. The sustained selling pressure dented investor sentiment and capped any meaningful upside in domestic stocks.

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3) Rise in crude oil prices: Brent crude, the global oil benchmark, rose 1.04 percent to USD 61.27 per barrel. Higher crude prices tend to raise India’s import bill and stoke inflation concerns, which weighs on equity markets.

4) Weak global cues: US markets ended flat on Friday and US futures were trading on a subdued note on Monday morning India time, indicating a muted opening overseas. In Asia, Japan’s Nikkei 225 index was trading lower.

"A strong rebound in the market needs a trigger like a US-India trade deal with favourable tariffs for India. There is no clarity yet on when this will happen. Therefore, a consolidation phase is likely in the near term and investors can use this phase to slowly accumulate high-quality stocks with preference for largecaps," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.

5) Decline in Rupee: The rupee depreciated 5 paise to 89.95 against the US dollar in early trade amid foreign fund outflows and a weak opening in domestic equities. At the interbank foreign exchange, the local unit opened at 89.95 against the dollar, down from the previous close of 89.90. On Friday, the rupee had declined 19 paise.

6) Rising India Vix: The fear gauge or the volatilty index rose more than 6 percent to 9.71, up 6.15 percent, indicating increased uncertainity among investors.

Technical view

According to Anand James, Chief Market Strategist at Geojit Investments Limited, Nifty is trading close to its 20-day simple moving average.

"An early pullback is possible, but a move above 26,127–26,150 is needed to confirm strength. Failure to hold above 26,050–26,077 could lead to further downside towards 25,935–25,850, and possibly 25,740–25,650, though the latter is less likely today," he said.

(Inputs from Reuters)

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