Sensex, Nifty fall for the second consecutive session; 5 factors behind the market fall

Indian equities continued to witness selling for the second consecutive session on March 15 as the market barometer Sensex fell 993 points and the Nifty slipped below 14,750 in intraday trade.

At close, the Sensex was 397 points, or 0.78 percent, down at 50,395.08, while the Nifty was at 14,929.50, down 101 points, or 0.67 percent.

In sync with the benchmarks, the BSE midcap and smallcap indices fell 0.72 percent and 0.53 percent, respectively.

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"Market trends are unclear. While the dollar index cooling to 9.16 is a positive for capital inflows, the 10-year bond yield hovering around 1.64 is a concern. Also the rise in core inflation, mainly pushed up by commodity price rise, is a concern," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Looks like we are at the trough of the interest rate cycle. Recent covid resurgence is another concern. Economy-facing stocks are set to benefit from the rebound in growth. Investors should always remember the fact that market valuations are high and therefore vulnerable to a correction," said Vijayakumar.

Also read: Rising inflation, falling IIP worst combination; will it force RBI to change stance?

Here are 5 key triggers for the selloff:

1. Rising bond yields

Rising bond yields have been keeping equities under the pressure of late. At present, the yield on 10-year bonds in India is over 6.20 percent after almost a year of low interest.

"The rise in bond yields raises the cost of capital for companies, which, in turn, affects their stock valuations. Hence, stock markets across the world are seeing some impact of increasing bond yields," Harshad Chetanwala, co-founder, Mywealthgrowth.com, said.

"If central banks allow the yields to go up, it indicates that the liquidity support that has been offered may also go down. Whenever the bond yield increases, investors, including FII, prefer to withdraw from equities and look at bonds," Chetanwala added.

2. Inflation concerns

Globally, investors are concerned about the prospects of rising inflation due to excess liquidity and rising bond yields.

"The firmness in US bond yields, still hovering around 1.53 percent, is a reflection of the market's inflation concerns. It is possible that the combination of the ultra-loose monetary policy and the $1.9-trillion stimulus may trigger inflation. That is the market's fear and concern," said Vijayakumar.

At home, retail inflation, or the Consumer Price Index (CPI), for the month of February 2021 climbed to 5.03 percent from January’s 4.1 percent. The sharp reversal in the CPI inflation reflects the potential inflationary pressures in the economy.

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said the CPI print reinforced concerns about a further increase in core inflation amid the ongoing economic revival.

Also read: CPI inflation surges to 5.03% in February; IIP recedes by 1.6% in January

3. Growth losing steam

The Index of Industrial Production (IIP) contracted by 1.6 percent in the month of January, after going up 1.6 percent in December 2020, fanning worries while inflation is rising, growth is losing momentum.

"After growth in December, the industrial production contracted in January mainly due to weakness in manufacturing and mining component, this despite progressive unlocking by government in most pockets of the country. This rising inflation and falling industrial production scenario are likely to have a bearing on the MPC meeting next month," said Nish Bhatt, Founder & CEO, Millwood Kane International.

4. Surging Covid cases

A sudden spike in Covid cases and reports of lockdowns in some areas also weighed on market sentiment.

India on March 14 recorded 25,320 COVID-19 infections, the highest daily rise in 84 days, taking the case tally to 1,13,59,048, according to Union health ministry data.

In Maharashtra, which is witnessing a surge in coronavirus infections, district administrations have imposed night curfews, lockdowns or weekend shutdowns to break the chain of transmission.

On March 14, the state recorded this year's highest one-day spike of 16,620 new cases, which pushed its overall caseload to 23,14,413, while 50 deaths pushed the toll to 52,861, the health department said.

A seven-day complete lockdown started in Nagpur on March 15. Only essential services such as vegetable and fruit shops and milk booths will stay open, the Nagpur district administration said.

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5. Technicals

The Nifty has broken its support at 14,850 and now there is a possibility that it goes to touch 14,500 level.

"The Nifty had strong and good support at 14,850 zone. Any decisive break below this can show some more pressure towards 14,500 on an immediate basis. The strong hurdle is still at 15,250 and only above that level we may see some stability," said Rohit Singre, Senior Technical Analyst at LKP Securities.

Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments, believes the index is now close to nudging the lower end of the range which is 14,750-14,800.

"If we break this on a closing basis, we could see southward movement and the next potential target could be 14,450-14,500. If we reverse from current levels, the markets will continue trading in a choppy and sideways fashion until it does not get past 15,250-15,300," said Hathiramani.

Extreme caution is advised and traders should be very careful in taking large positions. Due to the volatility, the stops would be large and sometimes not affordable, Hathiramani added.

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