Why did market fall today despite positive fundamentals? 5 reasons why Sensex fell 383 points, Nifty ended below 23,800

The Indian stock market slipped into the red on Monday, with Sensex and Nifty extending a four-week losing streak, even as economic and corporate earnings trends remain supportive.

Sensex dropped around 383 points to close at 76,133 while Nifty 50 lost around 119 points to end the session at 23,779 on Monday. This comes as a fresh escalation in the US-Iran conflict pushed oil prices higher, along with other factors that weighed on investor sentiment.

Infosys shares crashed 4% to lead losses on Sensex, while Tech Mahindra, Tata Steel and Bajaj Finserv shares dropped nearly 2% each to follow. UltraTech Cement, TCS, Trent, Asian Paints, SBI and Adani Ports shares fell more than 1% each. Bucking the trend, L&T and Bharti Airtel shares gained around 0.6% each.


Broader markets closed mixed, with Nifty Midcap 100 index falling 0.5% while Nifty Smallcap 100 index closed in the green with marginal gains. Among the sectors, Nifty IT and Nifty Realty dropped around 2% each to lead losses among the major sectoral indices. Nifty Metal and Nifty PSU Bank indices fell more than 1% each. Nifty Pharma meanwhile gained 0.75%. The overall market breadth turned negative, with NSE seeing 2,084 declines against 1,509 declines, while 105 stocks remained unchanged.

1) Iran-US conflict escalates

The conflict between Iran and US sharply escalated over the weekend. US forces ​struck three Iranian oil tankers on Saturday, including one off the coast of Kharg Island, near Iran's key oil export hub, the country’s Central Command said. Meanwhile, the navy of Iran's Islamic Revolutionary ​Guard Corps said it targeted three oil tankers ⁠that were ‌travelling through unauthorised routes in the Strait of Hormuz as well ​as three additional ​US vessels in other areas.

Following the attacks, Iran's Parliament Speaker Mohammad Baqer Qalibaf said on Sunday that the US should understand that the rules of the ‌game in the war against ⁠Iran have ⁠changed "before it is too late". "From now on, any attack against Iran's interests and security will receive a faster, heavier and more painful response," he said in a speech published on his Telegram channel.

2) Oil prices head towards $100/barrel

As a result of the fresh escalations in the conflict between Iran and US, oil prices soared close to the critical $100 per barrel mark. Brent crude futures were trading at around $98 per barrel while WTI Crude futures were trading near $93 per barrel.

Calling the latest tensions in the Iran-US war a "major escalation in ​the maritime conflict", maritime intelligence firm Marisks was quoted by Reuters as saying, “Commercial tankers are now being deliberately used as instruments ⁠of reciprocal economic pressure, substantially weakening the previous distinction between military ​confrontation and commercial shipping”.

3) Fed rate hike bets rise

US job growth accelerated sharply in August while ​the unemployment rate remained steady at 4.1%, implying an improvement in the labour market ​after recent struggles and keeping a rate increase this month on the table, data released on Friday showed. US nonfarm payrolls ​increased by 1.62 lakh in August, well above economists' expectations of a gain of 56,000.

The sharp growth boosted hopes for a rate hike by the Federal Reserve in September, with traders now pricing in roughly a 57% chance of a rate increase this month. Higher US rates could curb client spending, weighing on Indian IT firms ​that generate a significant share of their revenue ⁠from the ‌United States. This has led to Infosys, TCS, and other heavyweight IT stocks falling up to 3% today. Metal stocks too are bearing the brunt.

Also read | Infosys, HCLTech, TCS, other IT stocks drop up to 3% as Fed rate hike worries return. Here's why

4) Bond yields rise

Rising bond yields kept investors on the edge. The US 10-year yield continues to hover around 4.8%. The 30-year bond yield rose above 5.24%.

Rising bond yields in developed markets typically make bonds more attractive to investors, which in turn can lead to a downtrend in emerging equity markets.

5) FII selling

Foreign investors remained net sellers of Indian equities on Friday, selling shares worth Rs 3,112 crore, according to NSE provisional data. This marks the third consecutive session of sale by foreign investors.

Overall, FIIs have remained net sellers of Indian equities in five of six consecutive sessions. Persistent selloff by foreign investors dampens sentiment on Dalal Street.

What lies ahead for Dalal Street?

The Indian stock market has been falling for four weeks now, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted. A relevant question is why this downtrend is continuing despite positive fundamental news regarding the economy and corporate earnings. The analyst said that one explanation can be that worsening tensions in the Middle East and the consequent elevated crude prices are weighing on the market.

While it's relevant, there is another domestic factor which is impacting the market, he said. “This is the ongoing IPO boom and the spate of big IPOs expected to hit the market this month. Eleven mainboard IPOs are hitting the market this week. The mega IPOs from NSE and Jio are also expected this month. These mega IPOs are expected to absorb humongous liquidity from the market. Investors are looking for listing gains from these IPOs. In brief, the present focus is on the IPO market rather than the secondary market. This is likely to continue throughout September,” according to the analyst.

The better-than-expected jobs data in the U.S. has raised the prospects of a rate hike by the Fed in September, and this also will weigh on equity and bond markets globally, Vijayakumar concluded.

Technical view on Nifty

Nifty 50 on the daily chart formed a bearish candle with a lower high and a lower low signaling continuation of the corrective decline as the index closed below the 23,800 levels, said Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking. He noted that the immediate bias in the index remains down and sustaining below 24,025 levels will open downside towards the key support area of 23,600-23,500 levels being the confluence of the previous major gap area and the low of July 2026.

“On the higher side, key resistance is placed at 24,150 levels being the confluence of the last week high and 50 days EMA, only a move above the same will signal a pause in the downtrend. Key observation in the daily chart is that the daily stochastic and daily 14 periods RSI has approached oversold territory. Hence, index holding above the support area of 23,600 –23,500, will lead to a pullback towards the 50-day EMA placed around 24,150,” according to the analyst.


Disclosure: This article has been written by Debaroti Adhikary, who is not a Sebi-registered Research Analyst or an investment advisor. Debaroti Adhikary does not hold any financial interest in the company named in the article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of the EconomicTimes Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment.