Why are markets falling today? Bears tightened their grip on equity markets real tight as Sensex fell over 1,000 points intraday while Nifty cracked below the 17,000 zone on Monday, September 30. After today’s market crash, investors became poorer by over Rs 7 lakh crore as the market capitalisation of all BSE-listed companies dropped to Rs 269.86 lakh crore.
Weakness spread to broader markets, too, as Nifty MidCap 100 and Nifty SmallCap 100 indices dropped over 3 per cent and 4 per cent, respectively. The volatility gauge, India VIX, meanwhile, jumped over 8 per cent.
All sectors plunged in the sea of red with the Nifty Auto, Nifty Metal, Nifty Media and Nifty Realty indices taking the biggest hit.
Key Factors Pulling the Markets Down
Global Cues
The Dow Industrials was poised to confirm a bear market as a deepening downturn in business activity across the eurozone, and US business activity contracting for a third straight month in September, left Wall Street wallowing in a sea of red. The Dow Jones Industrial Average fell 2.35 per cent on Friday, making it the first major US stock index to fall below its June trough on an intraday basis. The S&P 500 lost 2.50 percent and the Nasdaq Composite dropped 2.55 per cent on Friday.
Among the Asian names, Nikkei, Taiwan and Kospi are down over two percent each while Shanghai and Hang Seng are trading flat today. SGX Nifty is down 260.50 points or 1.5 per cent at 17,071.50 today.
Falling Rupee
Amid a surge in US bond yields and the US dollar index, the rupee on Monday opened 0.68 per cent lower to hit a fresh record low of 81.55 against the greenback.
The local unit had reached a record low of 81.2250 on Friday, prompting the Reserve Bank of India (RBI) to sell dollars, according to traders. The RBI’s intervention had aided the rupee to turn briefly higher on Friday.
“The rupee will be under pressure as the dollar index may significantly rise as a result of the US Fed’s commitment to raise rates in a more hawkish manner in the upcoming months, which may lead the rupee to fall further to 82 to 83.5 levels,” Mohit Nigam, Head – PMS, Hem Securities, said.
US Fed Rate Hike Fears
Although US Fed’s 75bps rate hike was anticipated but the sustained aggressive stance indicating 125 bps hikes in the next two policy meetings by December 2022 has spooked the market.
Bond Yields
Due to the sharp rise in US bond yields, Indian bond yields have also moved up sharply with 2-year bond yields moving to a 3-year high. India’s 10-year benchmark govt bond yield was at 7.4173 per cent.
US 2-year bond yield was up 1.3 per cent at around 4.26 while the benchmark 10-year Treasury stood at around 3.75, its highest level since 2010.
RBI to Hike Rates Again
The Reserve Bank of India is set to raise interest rates again this week on Friday with a slim majority of economists in a Reuters poll expecting a half-point hike and some others expecting a smaller 35 basis point rise. The RBI has lagged many of its global peers, despite inflation sticking above the top end of its target range of 2-6 per cent all year. It has raised rates in three separate moves since May, one of them unscheduled, totalling 140 basis points and taking the key repo rate to 5.40 per cent.
Prashanth Tapse, research analyst, senior VP research, Mehta Equities Ltd., said: “Now street will be anxiously awaiting the RBI September MPC Meet outcome to trickle in on Friday, 30th. Amidst elevated inflation worries backdrop, the MPC is likely to hike the repo rate by 25-35 basis points. That said, with a backdrop of depreciating INR – a 50 bps hike cannot be ruled out, with no change in inflation and growth forecast for the full year.”
Japan’s factory Activity
Japan’s factory activity growth hit a 20-month low in September as firms struggled with a global slowdown and pressure from high energy and raw material prices was exacerbated by a weak yen.
FII Inflows
Indian markets had outperformed global markets since last 3 months. Kush Ghodasara, CMT independent market expert, said: “With rising interest rates over western countries, FII would like to book profits in developing markets and only indian stock markets have shown good returns so FII selling can get intense.”
Nifty Technical Outlook
Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One, said: “Weakness in global markets and the upcoming key domestic data have put a sense of tentativeness among market participants. As we have witnessed a decisive breach below the major support zone in Nifty, one should not rule out the possibility of it testing the immediate swing low of 17,150 odd zone, while the sacrosanct support lies at the psychological mark of 17,000. On the flip side, a series of resistances could be seen starting from 17,500 to 17,800 in the comparable period.”
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