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Last Updated : Sep 10, 2018 05:52 PM IST | Source:

Sensex loses 467 pts; Top 5 factors which dragged the market lower

Experts see the weakness along with consolidation will continue for few sessions given the situation of macro factors.

Moneycontrol News @moneycontrolcom

The market continued to be under pressure on Monday with Sensex falling more than 400 points on escalated trade war tensions, weakening rupee and weak global cues.

The selling pressure is broad-based as the Nifty Bank, Auto, FMCG, Metal and Pharma indices all are falling over a percent whereas the only gainer among sectoral indices is IT that gained third of a percent on rupee fall.

The broader markets also participated in the correction, with the Nifty Midcap index falling over a percent.


Experts say the weakness along with consolidation will continue for few sessions given the macro factors.

"This is sort of time tested correction for emerging markets (EM) as money is going back to the US with double whammy effect of complicated picture of trade war and tightening of liquidity by Federal Reserve's likely rate hikes on EMs. So, the impact is evident," Saurabh Mukherjea, Founder, Marcellus Investment Managers told CNBC-TV18.

The 30-share BSE Sensex was down 467.65 points or 1.22 percent to close at 37,922.17 and the 50-share NSE Nifty fell 151 points or 1.30 percent to 11,438.10.

On the global front, Asian markets were mixed amid US-China trade jitters. China's Shanghai Composite and Hong Kong's Hang Seng fell over a percent while Japan's Nikkei and South Korea's Kospi gained third of a percent each.

Here are five factors that are driving the market down:


The Indian rupee seems to be unstoppable as it has been hitting new record lows almost every day for last couple of weeks. The consistent weakness in emerging market currencies, renewed worries over US-China trade war, uptrend in crude oil prices, likely liquidity tightening by central banks, etc weighed on rupee.

The currency hit new low of 72.67 to the dollar, falling 93.5 paise or 1.3 percent compared to Friday's close due to escalated trade war tensions between world's largest economies US and China, and widening current account deficit.

"Adverse risk from trade wars, escalating geopolitical tensions, secular uptrend in crude oil prices, Fed rate hikes despite global uncertainties, and increasing tightness in central bank liquidity, have continued to dominate market sentiments leading to a broad-based USD strength. Additionally, political and economic uncertainties in Turkey, Argentina and Brazil have sparked fears of a contagion risk spreading to the rest of the EMs," Kotak Institutional Equities Research said.

Higher crude price amid Iran sanctions and domestic political uncertainty over the next few months will likely further weigh on INR, it feels.

With several global risks persisting and domestic fundamentals deteriorating, the research house shifted its USD-INR range to 69-74 for the rest of FY2019 with USD-INR likely to stabilise around 70-72 after bouts of overshooting.

Gaurang Somaiya, Currency Analyst at Motilal Oswal Securities expects that rupee could continue to feel the pain in the short term and intervention could restrict the pace but bias for the rupee is still negative.

Rupee, in the short term, could test levels of 73.20 and break above 72.15 could negate the view for short term weakness, he said, adding it may stabilise around 70-70.50 to the dollar in next 3-6 months if above factors stabilise including crude oil prices.

Trade War Tensions

Escalating trade war concerns between US and China is a still a hanging sword after US President announced that he has tariffs ready to go on $267 billion worth of Chinese imports in addition to the $200 billion of its goods already facing the risk of duties.

After imposing import tariff on Chinese goods, US president now has an eye on Japan with whom he looks to take trade issues.

Current Account Deficit

Higher current account deficit in value terms also caused selling pressure in the market.

India's current account deficit (CAD) as a percentage of GDP declined marginally to 2.4 percent in the April-June quarter of 2018-19 against 2.5 percent in the year-ago period, but in value terms, the CAD was higher at $15.8 billion in Q1FY19 as against $15 billion in Q1FY18 mainly due to a higher trade deficit.

While the CAD is at risk from higher crude prices, the key risk to capital account (mostly FPI flows) would be from (1) DM monetary policy, especially unwinding of Fed’s balance sheet and ECB’s QE, and (2) reduction in real interest rate differentials in FY2019, Kotak said.

It expects FY2019 CAD at $75 billion (2.8 percent of GDP) against $48.7 billion in FY2018 (1.9 percent of GDP) based on (1) higher non-oil imports given a modest cyclical recovery in domestic growth, and (2) modest non-oil exports growth.


Crude is another important key factor as after stabilisation from $80.50 a barrel levels to around $71-72 in two-month period moved up again towards $80 followed by correction in last couple of sessions.

Today Brent crude oil futures resumed uptrend again, rising a percent to $77.56 a barrel as US drilling for new production stalled and ahead of likely supply tightening on new US sanctions against Iran's crude exports from November.

Crude is always a risk for country like India, which imports more than 80 percent of oil requirement, experts said.

"The key risk is a rise in crude price accompanied by a fall in rupee. Beyond a threshold, this combination is going to push current account deficit to a point where it becomes highly inflationary for the economy and can disturb the fiscal balance. The recent rise in bond yield is indicative of the same and that surely implies the possibility of both earning downgrades and valuation multiple ranges shifting downward," Shailendra Kumar, Director and CIO, Narnolia Financial Advisors said.

Technical Factors

The Nifty50 breached its crucial support placed at 11,500 levels in afternoon trade. The index slipped below its crucial short term moving average such as 5-EMA, 13-EMA as well as 20-EMA.

It looks like the index has formed an intermediate top at 11,760 levels, and support for the Nifty50 is placed at 11450, and 11393 levels.

On options front, maximum Put OI is placed at 11,500 followed by 11,400 strikes while the maximum Call OI is placed at 11,800 and then 12,000 and 11,800 strikes. Call unwinding at immediate strikes while Put writing was seen at 11500 and 11600 strikes.

"The Nifty formed a Bearish Engulfing candle on the weekly scale which suggests limited upside, thus a tug of war between bulls and bears are likely to continue," Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

"Now it has to continue to hold above 11550 zones to extend its up move towards its 61.80% retracement of 11620 then 11666 - 11700 zones while on the downside supports are seen at 11500 then 11450 zones," he said.

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First Published on Sep 10, 2018 02:05 pm
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