Three reasons why Sensex tripped over 300 points in last hour of trade

NEW DELHI: The S&P BSE Sensex cracked about 400 points in late afternoon trade on Tuesday, led by losses in oil & gas, realty, metal, capital goods, bank and power stocks.

The sharp selloff pushed the Nifty50 below its crucial support level of 7,100, which closed marginally above 7,000. The index has an important support at 6,936-7,050 level and if it slips below that, further correction cannot be ruled out.

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The S&P BSE Sensex closed 362.15 points, or 1.54 per cent, lower at 23,191.97. It hit a low of 23,164.54 and a high of 23,692.08 during the day. The Nifty50 ended 114 points, or 1.6 per cent, lower at 7,048.25.


So why did the market crash in the last hour of trade? Going by the buzz on Dalal Street, here are the top three factors that weighed on the market.

Opec freeze on crude output The S&P BSE Sensex, which was trading with losses of about 100 points, saw a deep cut after global oil producers, including Russia and Saudi Arabia, agreed to freeze output to tackle a global glut.

However, the deal was contingent on other producers following suit, as Iran was absent from the meeting and was said to be planning to ramp up shipments. Oil prices rose to $35.55 a barrel, but later pared gains to trade below $34 as expectations of an immediate deal faded, media reports said.

Saudi minister Ali al-Naimi said freezing production at January levels was an adequate measure to stabilise the market. However, experts differed, saying it could probably lead to more volatility.

For India, which imports close to 80 per cent of her crude requirement, it will put additional pressure on its trade deficit. Oil imports contracted 39 per cent this financial year due to a fall in crude prices. Any volatility in oil prices will be negative for India.

"The fact that Saudi oil ministry is looking to freeze output and not actively reduce production is not entirely bullish for the oil market. Saudi Arabia has been gradually pumping more and more oil and it does have the capacity to produce more,” Mriganka Jaipuriyar of Platts said in an interview with ET Now.

“If Saudi Arabia does not pump more oil, it could alleviate some of the pressure on oil prices, but given the fact that it already has surplus capacity and a bearish demand scenario, I would not expect this news to have a long drawn out bullish impact on oil prices,” she said.

Platts said the market will at best digest it and will see a bit more volatility in oil prices going forward. Also, this is contingent on what other producers are doing.

Technical bounce back The S&P BSE Sensex rallied over 600 points in last two trading sessions, supported by strong global cues. However, the pain in the market remained and what we saw was more of a bear market rally and investors should not mistake it with value buying.

"Technically, we are in a bear market right now, because we have corrected by more than 20 per cent from the peak levels, which we made about a year ago last March. Right now, the market is driven a lot by what is happening globally and not so much by the local factors," Tushar Mahajan, Nomura India, said in an interview with ET Now.

"It is really a market which is 'sell on rallies'. The moves on the upside could be fairly ferocious like what we saw on Monday driven by short covering, but given the nature of flows, it is tough to believe that we have had a turnaround, and we could kind of rally back to 7,700 or so,” he said.

FIIs remain net sellers Foreign institutional investors (FIIs) pulled out close to Rs 44 crore on Monday compared with about Rs 2,000 crore inflows from domestic institutional investors (DIIs) in the same session. They have pulled out nearly Rs 3,000 crore from India equity market for the week ended February 12.

FIIs remained net sellers in the debt market as well with an outflow of little over Rs 1000 crore, according to data available on EconomicTimes.com.

"It is an unfortunate development for the bulls that the rally which was there on Monday did not even last for more than 24 hours and we are back to square one. I think the market is showing a great deal of weakness and my sense is that now we should be prepared for the markets to start trading sub-7000 by end of this week," said Dipan Mehta, Member, BSE & NSE in an interview with ET Now.

"Today, the volumes were also quite heavy and the way the cracks have taken place in the mid-cap, it is going to cause a lot of pain to investors as well as traders. The large negative outflows from the FIIs will keep our market under stress," he said.