Technology stocks were under pressure on the back of sharp appreciation in rupee. The Nifty IT index was down over a percent as Infosys, the index heavyweight lost over 2 percent.
Benchmark indices fell sharply on December 21 following consolidation seen in the previous session after the rally in seven consecutive sessions.
The 30-share BSE Sensex plunged 689.60 points, or 1.89 percent, to 35,742.07, in addition to 53 points decline in the previous session. Before this correction, the index had rallied more than 1,500 points, or 4 percent, in seven consecutive trading days.
The 50-share NSE Nifty fell far below 10,800 levels, down 197.70 points, or 1.81 percent, at 10,754.
The broader markets, too, were under pressure but the fall was less compared to frontliners. The Nifty Midcap slipped 1.58 percent and Smallcap 1.13 percent.
All sectoral indices were in bear trap. Nifty Bank, Auto, FMCG, IT and Realty were prominent losers, falling 1.5-2 percent.
The correction after strong rally seems to be due to profit booking, which is always needed and a part of rally, experts said, adding the consolidation is expected to continue for a while before moving on in either direction due to lack of domestic and global cues.
Also, the trading volume is expected to be lower for coming few sessions as foreign and domestic investors go on a year-end holiday and Christmas festival.
Here are five key factors that pulled the market down:
Global cues
Asian markets were under pressure, tracking weakness on Wall Street overnight. The threat of a US government shutdown and of further hikes in US borrowing costs sent dismayed investors sailing for safer harbours.
"There will be some cautiousness with the central banks statement that the total external commercial borrowings (ECB) will now be rule-based and will be capped at 6.5 percent of the gross domestic product," LKP Securities said.
The ECB limit now works out to be about $160 billion for the current fiscal year, against the actual outstanding of $126.29 billion as on September 30. The central bank already has a rule-based exposure for foreign investors’ exposure in bonds. Foreigners are allowed to invest up to 6 percent of the outstanding debt.
Japan's Nikkei and China's Shanghai Composite were down over a percent at the time of publishing this article. Hong Kong's Hang Seng and South Korea's Kospi were down marginally lower.
On Thursday, Dow Jones Industrial Average plunged 2 percent while S&P 500 and Nasdaq Composite slipped 1.6 percent each.
Global growth concerns
Globally, investors also worried about growth. Markets on Thursday were surprised by the Federal Reserve's commitment to tighten monetary policy despite rising risks to growth. The US central bank's commentary signalled two rate hikes in 2019 against three expected in the beginning of 2018.
Organization for Economic Cooperation and Development (OECD) lowered its interim outlook for global growth from 3.9 percent to 3.7 percent for both 2018 and 2019. The GDP growth in China is expected to remain at 6.5 percent in 2019, as the impact of trade tensions have, so far, been modest.
Meanwhile, IMF was slightly more pessimistic, taking its forecast for China’s growth down to 6.2 percent. Both organisations noted that global trade growth has slowed and that several developing countries have been severely impacted by a decline in the value of their currency.
Earlier this week, the Japan government also lowered its economic growth target for 2018 as well as 2019.
IT stocks due to appreciation in Rupee
Technology stocks were under pressure on the back of sharp appreciation in rupee. The Nifty IT index was down over a percent as Infosys, the index heavyweight lost over 2 percent.
Wipro, Tech Mahindra, TCS and NIIT Technologies shares were down over a percent each.
The appreciation in currency is always negative for exporters, as major IT companies earn majority of their revenue in dollar terms.
The Indian rupee gained past 70 a dollar, falling 193 paise this week and 449 paise from its record low touched in October.
Heavyweights Fall
Index heavyweights also caught in bear trap due to profit booking after rising sharply in past few sessions. Reliance Industries, ICICI Bank, HDFC Bank, HDFC and ITC were down between 1 percent and 2 percent.
Technical Outlook
Technical experts have been expecting the current fall as the markets were already in overbought zone initially this week. The Sensex surged around 3000 points from October lows and more than 1,500 points from last week.
Even the Nifty50 rallied from 10,333, the lows of December 11 when states poll results announced, to 10,950. So the current correction was on expected lines, experts said, adding there could be consolidation for few more sessions before turning the ride strongly on the upside.
"In case, Nifty breaches 10,800 levels on closing basis then it shall set the tone for short term sell off with a initial target placed around 10,750 kind of levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
Option band signifies a trading range in between 10,800 to 11,080 zones. Maximum Call open interest was seen at 11,000 strike followed by 10,900 and 11,200 strikes while maximum Put open interest was seen at 10,500 strike followed by 10,800 and 10,700 strikes.
