Sensex tumbles over 1% from day's highs: 4 key factors behind the fall

NEW DELHI: Benchmark indices on Thursday fell over 1 per cent from day’s highs amid profit booking around key resistance levels. Selling pressure in heavyweight Reliance Industries and a couple of banking names also weighed on indices.

At 12 pm, the BSE Sensex was quoting at 57,891, down 821 points or 1.4 per cent from day’s high of 58,712. NSE barometer Nifty50 was down 240 points or 1.37 per cent at 17,250 over day’s high of 17,490.

Here’s what weighed on the sentiment:

• Technical hurdle at 17,500

Analysts were anticipating 17,500 to act as a strong resistance, where the market could see correction or a mild consolidation after six days of back-to-back gains. Ahead of the opening bell, Sameet Chavan of Angel One had noted that the 17,450-17,500 range was still a sturdy wall for the bulls, and only a decisive closure above the same could trigger fresh longs.

He expected any dip towards the 17,200 level to get bought into. The 50-pack index hit a low of 17,161.25, before staging some recovery.

• Weakness in RIL, banks

Weakness was seen in index heavyweight Reliance Industries and banking and NBFC names. Seven Sensex stocks namely RIL, ICICI Bank, SBI, HDFC, HDFC Bank, Kotak Mahindra Bank and Axis Bank contributed about 250 points to the Sensex's 350-point fall.

Banks and NBFCs were down on profit taking, ahead of MPC’s three-day policy review that will conclude on Friday. Analysts though remained positive on financials.

“By and large, we are bullish on financials. Even the large private banks are quite cheap and they will give modest returns but with low risk. If somebody wants to chase high beta and look for little high risk, high growth-high returns, I would look at mid-sized banks and even public sector banks,” said Amish Shah, BofA Securities said in a note.

• Geopolitical tensions

Asian markets were also cautious, following the recent gains, as China's largest-ever military exercises encircling Taiwan kicked off earlier in the day. It is seen as a show of force straddling vital international shipping lanes after a visit to the island by US House Speaker Nancy Pelosi.

Pelosi was the highest-profile elected US official to visit Taiwan in 25 years, shrugging off several warnings by China. While not-so-harsh measures by China have eased investor nerves in Asia, drills near Taiwan are concerning. Asian markets were mixed while S&P500 futures were hinting at a negative start for US stocks later in the day.

• Rupee weakness

Weakness in the market was also seen as the domestic currency fell against the dollar after weak trade deficit data. Strong economic data in the US also supported the greenback. A weaknening rupee leads to foreign equity outflows. The market was also awaiting the outcome of Reserve Bank of India monetary policy decision due on Friday. The partially convertible rupee traded at 79.44 per dollar, having weakened up to 79.54 during the session, and hovered near levels it hit last week, Reuters reported.

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