Sensex, Nifty fall about a percent; mid, smallcaps underperform; 5 factors behind the selloff

Almost all sectoral indices closed in the red, with BSE realty, power, metal and telecom falling over 2 percent each.

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Here are 5 factors keeping the market under pressure:

1. Weak global cues: A surge in Delta variant infections sparked a broad sell-off on Wall Street the previous day over fears of renewed COVID-19 shutdowns and protracted economic recovery.

All three major US stock indexes ended the session sharply lower, with the S&P and the Nasdaq suffering their largest one-day percentage drop since mid-May.

Shares in Asia-Pacific fell on July 20 trade following an overnight tumble on Wall Street that saw the Dow Jones Industrial Average plunging more than 700 points.

2 Valuation worries: Experts say investors appear worried about the rich valuations of the market and any piece of negative news is triggering profit-booking in the market.

"The 725 points cut in the Dow yesterday, the worst in 2021, is a reflection of the risk-off in markets globally. The fact is that at high valuations when investors are sitting on big profits, any fear can trigger profit booking and corrections," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"This correction is good for the markets. In the absence of corrections, the excessive valuations will render the inevitable crash very severe and painful. A major correction is unlikely in India since we have already corrected a bit from the recent record high."

3 Relentless selling of FPIs: Foreign portfolio investors (FPIs) have been selling equities in July. As per data available with NSDL, FPIs have sold Indian equities worth Rs 4,938 crore in July so far. They have invested some money in the debt segment so net-net, they have pulled out Rs 1,243 crore from the Indian financial market in July so far.

4 Macro factors: Rising inflation and anticipation of lower-than-expected economic growth is weighing on investor sentiment. While inflation can force central banks to taper their stimulus exercise, sluggish economic growth may puncture the bull market sentiment.

5 Technicals: The Nifty formed a Doji candlestick in the previous session as well as confirmed the Hanging Man Candlestick pattern, which suggest negative movement.

Moreover, the index closed below 21-DMA, which further adds weakness to the counter. Hourly momentum indicator MACD is also showing negative crossover, which suggests weakness, Sumeet Bagadia, Executive Director at Choice Broking, said.

As per Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments, the Nifty is threatening the 15,600 level and is not too far from that crucial support zone.

"What needs to be monitored is, either we take support and bounce back to resume the current uptrend and head back to 15,900-16,000 or we break this level on a closing basis and the next possible target could be 15,400. Traders are advised to maintain caution and keep strict stops on their trades," he said.

(With inputs from Reuters & other agencies)

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