Protectionism, FII selling, lending rates by banks and technical factors, among others, are seen as reasons behind the fall.
Bears were in control in the market on Monday as weakness was seen across sectors, which eventually led to big losses on D-Street. Cuts in metals, auto, pharma as well as IT names were visible during the day’s trade.
The Sensex almost fell 400 points intraday, while the Nifty lost over 100 points.
Midcaps, too, cracked over 1 percent during the session, leading to an overall downward trend.
Sun Pharma and TCS were the top gainers, while Tata Motors, Hindalco and Aurobindo Pharma cracked.
Moneycontrol lists five factors why the market fell during the day’s trade.
Protectionism
US President Donald Trump’s decision to impose import tariffs on steel and aluminum has not gone down well with metal stocks.
The President announced that there would be an imposition of 25 per cent import tariff on steel and 10 per cent on aluminium to protect US producers, a move that could trigger a trade war with China and Europe.
An executive order in this regard would be signed next week, Trump said after a meeting with executives of steel and aluminium companies.
"It'll be for a long period of time...And you'll have protection for a long time in a while. You'll have to regrow your industries, that's all I'm asking," Trump said in the presence of a pool of reporters.
Lending rates
The Street could also be reacting to the rising cost of funds for businesses as well as retail investors.
State Bank of India (SBI) raised marginal cost-based lending rates (MCLR) by 10-25 basis points across most maturities, with immediate effect. This indicates a likelihood of a rise in the EMIs (equated monthly instalments) of home, auto and other loan borrowers.
ICICI Bank also raised its MCLR, which is now at 7.95 percent for the overnight rate against the earlier 7.8 percent, a hike of 15 bps. The one-year MCLR rose by 10 bps from 8.2 percent to 8.30 percent with effect from March 1, 2018. Its 3-month MCLR has risen to 8 percent (from 7.85 percent) and 6-month MCLR was raised to 8.25 percent from 8.15 percent.
Other banks are likely to follow suit as typically, a deposit rate hike is followed by a lending rate hike. This indicates that the interest in the economy has moved up even as the Reserve Bank of India (RBI) in February kept its policy rates unchanged for the third time.
FII Selling
Some weakness was visible in the market on the back of pulling out of funds by foreign institutional investors. A look at monthly trends reveal how FIIs have been looking to sell shares in the Indian market.
FIIs have sold a little over Rs 18,600 crore for the month of February. However, for March 1, the FII buying was about Rs 240 crore.
Technical Indicators
On a technical basis, there is some weakness seen on the charts as well. Last week, the Nifty formed a ‘Shooting Star’ kind of pattern which should weigh on markets in the coming week.
HDFC Securities, in its weekly analysis, said that the underlying trend of Nifty from daily to monthly timeframe is down. The important top reversal pattern has been formed/confirmed, from smaller to larger timeframe.
“We expect further weakness in Nifty down to the retest of important support of ~ 10,300 levels for next week, where one may expect emergence of minor buying interest again,” the brokerage said in a report.
Asian Markets
There was weakness seen in global markets as well, particularly in Asia. The market there closed lower as Chinese leaders headed into an annual parliament meeting while in Italy, exit poll projections indicated that no party is emerging with a clear majority in Sunday's election.
Japan's Nikkei 225 fell 0.66 percent to close at 21,042.09, marking its fourth straight session of losses. Monday's declines also saw the Nikkei touch its lowest levels since October. The Topix index ended down 0.79 percent. Across the Korean Strait, the Kospi closed lower by 1.13 percent.
