There was selling across all the sectors, with traditional defensives such as IT and pharmaceuticals too taking a hit
Volatility dominated trade on equity benchmarks on October 23 with some global cues, technical factors and NBFC concerns, among others weighing on indices.
There was selling across all the sectors, with traditional defensives such as IT and pharmaceuticals too taking a hit. Consumption and financials were the other big losers during the day.
Here is a look at four such factors that dragged the market lower.
Global cues
Globally stock markets fell sharply amid rising global trade as well as geopolitical tensions. Japan's Nikkei, China's Shanghai Composite, Hong Kong's Hang Seng and South Korea's Kospi plunged 2-3 percent.
The weakness also spilled over to European markets as Germany's DAX was down more than 2 percent followed by France's CAC (down 1.7 percent) and Britain's FTSE (1 percent) at the time of writing this article.
Overnight on Wall Street, the Dow Jones Industrial Average closed 126.93 points lower while the S&P 500 dropped 0.4 percent.
Globally, investors remained cautious over mounting geopolitical tensions around the world.
US President Donald Trump said on Monday he was not satisfied with what he had heard from Saudi Arabia about the killing of journalist Jamal Khashoggi at its consulate in Turkey, but expressed reluctance to punish the kingdom economically.
While Saudi Arabia has sought to shield its powerful crown prince from the killing, many officials have cast doubt on Riyadh's narrative. Several countries, including Germany, Britain, France and Turkey, have pressed Saudi Arabia to provide all the facts.
A Saudi official provided this weekend a new account of the death of journalist Jamal Khashoggi, deviating from a prior official statement from Saudi Arabia. Khashoggi's death has led to global criticism toward Saudi Arabia and has sent ripple effects throughout global markets. Last week, foreign investors reportedly dumped more than $1 billion worth of Saudi stocks.
Meanwhile, the US-China trade war remains a focus for markets, especially after a Chinese official told American investors at a meeting that Beijing did not "fear" a trade war with Washington. (With inputs from CNBC.com, Reuters)
Liquidity concerns weigh on NBFCs
Amid the controversy surrounding IL&FS, concerns on liquidity among non-banking financial companies have weighed on these stocks. Investors could be cautious about the availability of funds as banks may not be lending or lending at a higher rate against the commercial papers (CPs). This, as a result, pushes up borrowing costs for NBFCs as they will have to shell out higher interest rates against the issuance of commercial papers.
Along with it, traders could be wary of stocks not reacting to authorities’ nudge to make functioning better for the financial space. The RBI recently eased some norms for NBFCs and indirectly opened liquidity window for NBFCs/HFCs in a bid to allay fears over CP rollovers.
The government is also reportedly nudging the Reserve Bank of India to ease conditions under prompt corrective action (PCA) framework, which is preventing banks from lending further.
Technical cues
The Nifty50 broke below its crucial support placed at 10,138 intraday which opens up a possibility of the index retesting its crucial support placed at 10,000-9900 levels.
The primary trend of the Nifty had been bearish with lower tops and lower bottoms on the daily charts. The Nifty has been trading below its 20, 50, 100 and 200-DMA.
Most analysts advise investors to use the pullback rallies to create short positions on Nifty as the probability of the index retesting lower levels is much higher.
“The immediate support for the Nifty is seen at 10,138 and any close below the same could push Nifty towards downside target of 9875, which happens to be 38.2 percent Fibonacci retracement of the entire rally seen from 6,825 (Feb 2016 Bottom) to 11,760 (28 Aug 2018 Top),” Nandish Shah, Technical & Derivatives Analyst at HDFC Securities.
“On the derivatives front, we have seen short positions being built in the Nifty Futures during the current series. FIIs created fresh shorts in the Index Futures and Index Option segment during the current series. Amongst the Options, Calls have been written at 10400-10500 levels,” he said.
Rupee fluctuations
The rupee has had a painful year so far, falling over 15 percent year to date. The Indian currency has held around 73-74 levels and constantly fluctuated between these levels, adding to the volatility on the currency market.
"Indian rupee has depreciated and we are pretty much near the bottom," Mark Mobius, Founding Partner of Mobius Capital Partners, said at the two-day Morningstar Investor Conference 2018 in Mumbai.
So far in this calendar year, the rupee has depreciated 13.44 percent and is currently trading at around 73.79 against the dollar.
Mobius is interested in coming to India as the country offers "a lot of bargain" for investments.
