Bloodbath on D-Street: Sensex settles over 1,200 points lower, Nifty closes near 25,450; 6 key factors behind market crash

Bloodbath on D-Street: Sensex settles over 1,200 points lower, Nifty closes near 25,450; 6 key factors behind market crash

• Sensex and Nifty turned negative after early gains on Feb 19
• Profit booking and rising crude prices weighed on markets
• Nifty needs to cross 26,000 for a sustained market upmove

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Benchmark indices Sensex and Nifty gave up their early gains on February 19 and ended the trading session in deep red as escalating US-Iran tensions pushed crude prices higher and dampened market sentiment. Sensex fell over 1,200 points while Nifty broke multiple support levels to close near 25,450.

On February 19, the Sensex closed 1,236.11 points or 1.48% lower at 82,498.14, and the Nifty ended 365 points or 1.41% lower at 25,454.35. About 1,238 shares advanced, 2,802 shares declined, and 147 shares were unchanged. This is the biggest fall in the market in five sessions and market capitalisation to the tune of Rs 7 lakh crore got erased.

Only four constituents in the Nifty 50 closed trading with gains and all sectors ended trading in the red. Nifty Realty was the worst performer, down nearly 3%.

Oil and Natural Gas Corp. of India ended as the top gainer, up nearly 4%. InterGlobe Aviation was the worst hit among Nifty 50 constituents, down over 3%. Shares of Trent, Mahindra & Mahindra, UltraTech Cement, Bharat Electronics, and Bajaj Auto also ended nearly 3% lower.

Four factors behind market crash:

1. Profit booking

Profit booking was seen on February 19 after the markets rose for three straight days.

All the 16 major sectors logged losses. The broader small-caps and mid-caps fell 1.27% and 1.6%, respectively.

Both the Nifty and Sensex gained about 1.4% in the previous three sessions, supported by December-quarter earnings that broadly met expectations despite a one-time hit of labour code-related charges.

"Participation remains stock specific, indicating cautious deployment of capital," said Aakash Shah, technical research analyst at Choice Broking.

"While overall sentiment remains positive due to improving earnings, consolidation is likely to persist in the near-term," Shah added.

2 Rising crude prices

Oil prices held gains after surging in the previous session, as investors priced in potential supply disruptions on concerns of a conflict between the U.S. and Iran.

Brent crude futures were down slightly at $70.31 a barrel after jumping 4.35% in the previous session, while U.S. crude was last at $65.10, holding on to most of Wednesday's 4.6% gain.

"For India, this is worrisome because we are a major crude importer and any sustained rise in oil prices feeds straight into market sentiment and the economy through imported inflation," Aishvarya Dadheech, founder and chief investment officer at Fident Asset Management told Reuters.

Dadheech added that geopolitical tensions became the "perfect trigger" for selling as investors were already sitting on three consecutive sessions of gains.

Oil marketing firms Indian Oil Corp, BPCL and HPCL dropped 2.5%, 3.5% and 5%, respectively. In contrast, upstream oil companies, such as ONGC and Oil India, which tend to benefit from higher prices, gained 3.8% and 5.1%.

3. Technical level

Analysts said Nifty has to cross the 25,900-26,000 zone for further upmove in the markets.

"Given persistent global uncertainties and elevated market volatility, traders are advised to maintain discipline and be selective, focusing on fundamentally strong stocks during market corrections. Fresh long positions should be considered only after a sustained breakout of the Nifty above the 26,000 level, which would signal a more reliable improvement in overall market sentiment," said Hitesh Tailor, Research Analyst, Choice Equity Broking Private Limited.

"We will go in today, continuing to expect eye 25,900, while also seeing a fair possibility of testing 26,050. However, we are uncertain of momentum sustaining beyond the same. This prompts to have the downside marker pulled up to 25,728," said Anand James, Chief Market Strategist, Geojit Investments Limited.

"The immediate support is placed at 25,700–25,660. On the upside, 26,000–26,050 remains the next resistance cluster. Sustaining above 26,000 could open the path toward the upper channel band," said SAMCO Securities.

4. India VIX rises 10%

India VIX was trading 10% higher at 13.46, signalling rising near-term volatility. With February 19 being F&O Expiry day for Sensex, more volatility was seen.

5. Bank stocks crack

Bank Nifty fell 1.3% on February 19 with the sectoral index falling below the 61,000-mark.

Financial services stocks like Kotak Mahindra Bank, Shriram Finance, Bajaj Finserv, SBI Life Insurance Co., and Bajaj Finance also ended 1–2% lower. Shares of State Bank of India and Axis Bank ended around 1% lower.

"Immediate support is seen at 61,250–61,350, while the 61,750–61,850 zone continues to act as a key resistance band. A decisive close above this region could pave the way for further upside expansion in the near term," said Tailor.

6. Weak global cues

A rebound in US stocks faded as concerns about a possible conflict between the US and Iran sapped risk sentiment. S&P 500 contracts reversed early gains to fall 0.3%. The gauge fell further after the head of the United Nations nuclear watchdog warned that Iran’s window for a diplomatic deal on its atomic program is closing.

Nasdaq 100 futures fell 0.4% as technology stocks came under fresh pressure. Most members of the Magnificent Seven dropped in premarket trading, while an ETF tracking software firms retreated as well. Gold erased an advance above $5,000 an ounce. Treasuries extended their slide while the dollar was flat.