Sensex down 600 pts from day's high, Nifty below 24,600: Weak global cues, other reasons behind sharp market fall

Sensex falls 700 pts from day's high, Nifty below 24,550: Weak global cues, other reasons behind sharp market fall

Benchmark indices Sensex and Nifty closed in red on September 2 after reversing gains as an expiry-driven pullback in financials overpowered a broad-based rally. Sensex fell 600 points from day's high while Nifty closed below the 24,600-mark.

Sensex closed 206.61 points or 0.26 percent lower at 80,157.88, and the Nifty ended 45.45 points or 0.18 percent lower at 24,579.60. About 2,413 shares advanced, 1,551 shares declined, and 127 shares were unchanged. Sensex's intraday high on September 2 was 80,761 while the intraday high of Nifty was 24,756.

Here are three reasons behind market fall:

Weak global cues:

Wall Street futures were trading in red after a holiday on September 1 with Dow trading 200 points lower and Nasdaq and S&P 500 were trading 0.64% and 0.5% lower, respectively.

With dollar steadying near five-week lows and gold climbing to record highs on September 2, investors await economic data this week that could reinforce expectations for a Federal Reserve rate cut in September.

Markets widely expect the Fed to lower interest rates later this month, pricing in an 89% chance of a 25 basis point cut, but data this week will help investors gauge whether the central bank could perhaps lean toward a jumbo cut.

The focus will be on Friday's US nonfarm payrolls report, which will be preceded by data on job openings and private payrolls, providing investors and the Fed a clearer picture of the labour market that has become the centre of policy debate.

"While an outsized 50 bps cut in September is not the base case expectation currently, it cannot be ruled out altogether if the August jobs data shows exceptional weakness," Vasu Menon, managing director of investment strategy at OCBC Bank told Reuters.

The US inflation report for August, scheduled to be released on September 11, a week before the Fed's policy meeting, will play a crucial role in determining the central bank's next steps.

Most European markets opened on a cautious note Tuesday, with Nestle falling over 3% after the Swiss food giant sacked Chief Executive Laurent Freixe a year into his tenure on allegations of an illicit relation with a subordinate. The pan-European STOXX 600 was down 0.1%.

Nifty expiry volatility:

With Nifty F&O expiry shifting from Thursday to Tuesday starting this September, volatility was seen on September 2. Nifty weekly expiries usually see volatility with wild swings and today was no different. All indices were trading at day's low in late afternoon trade after hitting intraday highs earlier in the day.

Immediate resistance for the Nifty is now seen at 24,800, above which sharp short covering is expected. However, any level below 24,400 would resume the downtrend, which could further drag the Nifty towards the next support of 24,270 (200-day EMA), said Devarsh Vakil, Head of Prime Research at HDFC Securities.

Profit booking:

Profit booking could also be a reason for the markets trading at day's low after Sensex rallied 900 points in last two sessions. Traders could have taken some profits off the table as they await cues from the decisions of the GST Council, scheduled to be announced on September 4.

The GST council, scheduled to meet on September 3-4, is planning to cut consumption tax by at least 10 percentage points on nearly 175 products ranging from shampoos and hybrid cars to consumer electronics, measures that could boost consumption.

On September 2, Bank Nifty led the losses on the indices by cracking 600 points from day's high.

"The domestic macro backdrop and demand environment remain constructive, though 50% U.S. tariffs could cap gains," Siddhartha Khemka, head of research for wealth management at Motilal Oswal Financial Services told Reuters.