Sensex cracks, Nifty50 below 7400: Top five factors weighing on markets

NEW DELHI: The S&P BSE Sensex plunged as much as 276 points in morning trade on Wednesday while Nifty50 plunged 85 points and fell below its crucial support level at 7,400.

The fall in the index was led by losses in power, capital goods, banks, auto, telecom and IT stocks.
Also read: Sensex plunges over 200 points, Nifty50 below 7,400

So why is the market crashing? Going by the buzz on Dalal Street, here are the top five factors weighing on the market:

Crude below $30: The benchmark Brent crude settled 4.4 per cent down, while US crude fell 5.5 per cent on Tuesday to settle below $30 a barrel. This has put pressure on markets across the globe after inventory data showed there is a 3.8 million inventory buildup and efforts to reach a deal to curb supplies ended inconclusively.

Hope for steps to cut production dimmed this week as no deal has emerged as talks between the Russian energy minister and Venezuela oil minister on Monday didn’t result in any clear plan to reduce crude output.

For minute-by-minute market/stock updates, follow our Twitter handle @ETMarkets

Benchmark Brent crude slumped 4.4 per cent on Tuesday while US crude fell by an even bigger 5.5 per cent, settling below $30 a barrel, reports said.

Data showed that oil prices have fallen about 70 per cent in the past 18 months, and analysts see pain in the commodity for some more time. “I think crude is just sort of bouncing from the oversold levels, and has not been able to create a bottom for itself. The low we saw around $28 is going to come in for many more reasons,” said CK Narayan, Growth Avenues Asset Advisors.

“The whole world seems to be focused on finding a bottom in oil and the bottom will never happen when everybody is looking for it. It actually happens at a different time. It looks like we have more pain to go in oil much before we actually see the bottom,” he said.

Weak handover from Wall Street: Overnight, the US markets saw a triple-digit cut, tracking weakness in European markets on weaker-than-expected results from oil giant BP and UBS and a sharp fall in US crude prices, which fell below $30 a barrel.

Investors on Wednesday would keenly track PMI readings, data on crude oil inventories and non-manufacturing orders and employment data in the US scheduled for release later in the day. Eyes will also be on the PMI readings across the euro zone.

Rate cut delayed till budget: The Reserve Bank of India (RBI) in its policy meet on Tuesday maintained status quo on key policy rates. Although the central bank maintained its accommodative stance, no further easing is likely until at least March (post budget).

People who track the market expect RBI to cut rates only after the budget, which is expected on February 29. “We expect RBI to deliver a 25 bps rate cut after the budget, although we do not rule out an earlier interest rate cut,” said Sonal Varma, India economist at Nomura.

Structural reforms in the forthcoming Union budget to boost growth while controlling spending will create more space for monetary policy to support growth, the RBI statement said.

Technical take: The Nifty50 has once again tripped from its three-week high of around 7,605 mark. On the daily chart, Nifty futures are trading below both 50 and 200 DMAs. Most analysts expect the market to move sideways over the next few sessions. On Tuesday, it showed a bearish movement and breached the important support of 7,550 and made a low of 7,448.

“In the forthcoming sessions, Nifty50 is likely to trade in a range below the immediate resistance of 7,570 and is likely to test the next support level of 7,400,” said Vivek Gupta, CMT - Director Research, CapitalVia Global Research.

“If Nifty50 breaches the 7,400 level after consolidation, it may slip further downward till the next support level at 7,330. Its immediate resistance is at 7,570 and if this level is crossed, a bullish movement can be expected till 7,610 level,” he said.

FII selling continues: Foreign institutional investors (FIIs) sold shares worth Rs 114 crore in Indian market on Tuesday while in whole January they pulled out more than Rs 11,000 crore, the highest net outflow in five months. This was attributed to global growth worries and a decline in oil prices.

However, these investors continue to be bullish on the Indian debt market and have invested Rs 2,313 crore during this period. Data available with depositories showed foreign portfolio investors (FPIs) infused Rs 70,742 crore into the equity market, while pulling out Rs 81,868 crore during the same period, resulting in a net outflow of Rs 11,126 crore (USD 1.65 billion).