Sensex falls 1,000 points: Key factors behind stock market weakness

Stock markets opened in red on Friday as Sensex tanked more than 500 points despite November inflation coming back into the RBI’s tolerance band.

As of 10:37 AM, the Sensex was down 1,064.37 points to 80,225.59, while Nifty was also struggling below 24,300 losing 332.10 points to 24,216.60.

All the sectoral indices on Nifty were in red along with Nifty Midcap100 and Nifty Smallcap100, with the volatility index rising by 2.83%.

What are the factors contributing to the market slide:

FIIs HEADWIND

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “In the near-term the market has a headwind and a tailwind. The headwind is the resumption of selling by the FIIs who sold stocks for Rs 3560 crores yesterday. Given the high valuations in India FIIs are likely to sell more at every market rise. Selling has been profitable for FIIs since the dollar has been appreciating after the US election.”

RISING DOLLAR

The rupee has been seeing a constant decline and hit an all-time low on Thursday.

Reuters reported that the central bank is likely intervening through state-run banks to sell dollars, aiming to stabilise the rupee and prevent it from weakening like other Asian currencies.

The rupee stood at 84.84 against the US dollar after opening at 84.86. Meanwhile, other Asian currencies saw declines ranging from 0.2% to 0.5%, and the dollar index remained above the 107 mark.

A trader told to Reuters that state-run banks were providing ‘good’ dollar offers, which represent the Reserve Bank of India’s intervention.

“The tailwind which can support the market is the declining inflation. November CPI inflation at 5.48% has come within the RBI’s tolerance limit. If this trend continues it can pave the way for a rate cut by the MPC in February. However, the rising dollar is a concern since it can lead to imported inflation. Nifty is unlikely to break from the range of 24500 – 24850. Buying will emerge at the lower end of the band and selling will resume at the higher end of the band,” said Vijayakumar.

DECLINE IN METAL, AUTO, IT, BANKING STOCKS

Banking and metal stocks were major laggards on Friday as it pulled the markets down.

Tata Steel declined 2.77%, JSW Steel lost 2.53%, Shriram Finance dropped 2.50%, Indusind Bank decreased 1.93%, and Hindalco fell 1.87%.

Nifty Bank was down 0.89%, Nifty Auto decreasing 0.83%, Nifty Financial Services losing 0.87%, Nifty Financial Services 25/50 down 1.03%, Nifty FMCG falling 0.34%, Nifty IT declining 1.23%, Nifty Metal dropping 2.01%, and Nifty Pharma decreasing 0.77%.

Nifty PSU Bank, down 1.65%, Nifty Private Bank declining 0.80%, Nifty Realty falling 0.79%, Nifty Healthcare Index dropping 0.56%, Nifty Consumer Durables decreasing 0.69%, Nifty Oil & Gas down 0.66%, and Nifty Midsmall Healthcare losing 0.75%.

Anand James, Chief Market Strategist, Geojit Financial Services said that the slow decline aiming for 24420/380 that we pencilled in yesterday, unfolded through the day, until bargain buying trickled in on the approach of the recent low.

“This raises the prospects of an early end to the consolidation that has been on through the week. Alternatively, inability to float above 24465 early in the day, could delay the onset of reversal attempts, but fears of a collapse can be set aside, unless 24320 also gives away. Until then, brace for upswings shortly,” he added.