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Sensex falls over 1,100 points, Nifty slips below 14,650; 5 factors behind sell-off

Analysts are of the view that the rising US 10-year bond yield indicates the market's worries about inflation.

February 22, 2021 / 03:44 PM IST

Extending their losing run into the fifth consecutive session, the Indian equity benchmark Sensex fell more than 1,100 points and Nifty slipped below 14,650 in intraday trade on February 22.

At close, Sensex was 1,145 points, or 2.25 percent, down at 49,744.32 while Nifty was 306 points, or 2.04 percent lower at 14,675.70.

Mid and small-caps outperformed as the BSE Midcap and Smallcap indices fell 1.34 percent and 1.01 percent, respectively.

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Here's are 5 factors that fuelled selling in the market:

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Concerns over rising Covid cases:

The concerns over rising COVID-19 cases in India is dampening market sentiment. Maharashtra has announced a fresh set of restrictions in the state in the light of a rise in COVID- 19 cases in the last week.

In the last four weeks, the weekly tally of the state has shown a rising trend and increased from 18,200 to 21,300.

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"The escalation in COVID cases in Maharashtra is emerging as a cause of concern. These concerns have impacted FPI flows to the market which, though positive, appears to be slowing down. Clear trends on these concerns have to be watched," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Concerns over rising inflation:

Analysts are of the view that rising US 10-year bond yield indicates the market's worries about inflation. Besides, it is also making equity valuations appear stretched in comparison.

Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services, pointed out Nifty valuations at nearly 21 times FY22 EPS are not inexpensive anymore and demand consistent earnings delivery ahead.

"Rising bond yields may cap equity valuations as the RBI may have to do a balancing act to keep bond yields at lower levels while managing the government borrowing program," Khemka said.

Vijayakumar of Geojit Financial Services underscored the rise in the US 10-year bond yield to 1.36 percent reflects the markets' concern about a potential rise in inflation.

Fall in the pace of FPI inflow:

Concerns over rising coronavirus cases and high valuations seem to have weighed on FPI inflow also, experts pointed out. Even though FPIs have been buying in the Indian market, the pace of inflow has slowed.

FPIs net bought shares worth Rs 118.75 crore in the Indian equity market on February 19, as per provisional data available on the NSE.

Lacklustre global cues:

Lacklustre global cues also weighed on investor sentiment back home. As per Reuters, Asian shares turned mixed on Monday as expectations for faster economic growth and inflation globally battered bonds and boosted commodities, while rising real yields made equity valuations look more stretched in comparison.

Technicals:

Last week, Nifty formed a bearish engulfing candle on the weekly scale.

"Till it remains below 15,150, weakness could continue towards the next key support of 14,800-14,700 while on the upside, hurdles are seen at 15,250-15,400," said Khemka.

Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking, is of the view that we need to keep a close eye on how Nifty behaves around its key support zone of 14,750 – 14,550.

"Only a sustainable breach of these crucial levels should be considered as a short-term trend reversal. On the flip side, 15,100 – 15,200 would be seen as immediate hurdles and any bounce towards this is most likely to get sold into," he said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Feb 22, 2021 12:34 pm

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