Jayant Manglik, President at Religare Broking, feels traders have no option but to follow the prevailing bias and prefer hedged positions instead of naked trades.
The market fell sharply on first day of the week starting February 18 and continued its downtrend for seventh consecutive session on Monday with the Nifty falling below 10,700-levels, dragged by Reliance Industries, TCS, ITC and HDFC Bank.
Reducing foreign inflows due to fear of escalation of tensions at the border also impacted the sentiment.
The benchmark indices opened flat, but immediately started consolidating. The recent profit-taking phase in private banks and IT majors, which were holding the benchmark indices, are adding to the negatives.
At close, the 30-share BSE Sensex was down 310.51 points at 35,498.44 and the Nifty50 fell 83.40 points to 10,641.
"Contrary to past statistical evidence, Nifty is showing signs of decoupling with the US market. Almost all Asian markets were up today and US too was up on Friday but still Nifty slipped deep in the red. Such decoupling is good in the long-term interest of the Indian markets. The bears have tightened their grip in the market," Umesh Mehta, Head of Research at Samco Securities told Moneycontrol.
Jayant Manglik, President at Religare Broking feels traders have no option but to follow the prevailing bias and prefer hedged positions instead of naked trades.
Here are five factors which pulled the market lower:
Geopolitical concerns
The devastating terror attack last week in Pulwama which took lives of at least 40 CRPF personnel left the nation in a shock. Tremors of the same were felt on Dalal Street as the Indian market observed its worst week since October 19, 2018, when Nifty fell 2.65 percent.
Both Sensex and Nifty are trading below their crucial psychological support levels which were broken in the week gone by. The S&P BSE Sensex slipped below 36,000 while Nifty50 broke below 10,700 levels.
Consistent selling seen in the Indian market last week pushed the indices towards crucial support levels. Most experts feel that a technical bounce back could be on the cards, but escalating tensions between the two nations could put fresh money on the sidelines.
“There is a palpable sense of nervousness in case the situation at the border continues to deteriorate, and this comes at a time when there is heightened sense if risk aversion among investors with respect to equities in the run-up to general elections,” Ajay Bodke, CEO & Chief Portfolio Manager (PMS), Prabhudas Lilladher told Moneycontrol.
“The confluence of these two factors will keep investors on the edge, and hence, one needs to tread cautiously in the short term,” he said.
The tensions between the two nations are on the rise, especially after Prime Minister Narendra Modi in a speech on February 15 said those responsible will pay "a very heavy price" and security forces will be given a free hand to deal with terrorists.
Crude Oil
Crude oil prices rose to their highest levels since November 2018 lifted by OPEC-led supply cuts and US sanctions on Iran and Venezuela.
International Brent crude futures hit a high of $66.78 per barrel before easing to $66.40 per barrel. For both benchmarks, these were their highest levels since November 20, 2018.
The Organization of the Petroleum Exporting Countries (OPEC), as well as some non-affiliated producers like Russia, agreed late last year to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from swelling more.
Further pushing up crude prices have been US sanctions against oil exporters and OPEC-members, Iran and Venezuela. (with inputs from Reuters)
Technical View
The Nifty50 formed a bearish candle on the daily charts on Monday. It slipped below crucial short and long term moving averages which is not a good sign for the bulls.
The index recently broke below its crucial support placed at 100-days moving averages at 10,691, and a close below 10600 could fuel further selling in the index, fear experts.
Mid & Smallcaps under pressure
The broader markets continued to be under pressure and fell more than benchmark indices. The Nifty Midcap and Smallcap indices declined nearly a percent each.
The market breadth, too, continued to be in favour of bears. About two shares declined for every share rising on the BSE.
Bears continued to have tight control over mid-smallcaps as Nifty Midcap and Smallcap indices fell 10 percent and 12 percent respectively year-to-date, in addition to 15 percent and 29 percent decline in 2017.
Sectors in bear trap
Sell-off was seen in all leading sectoral indices. Nifty IT, FMCG and metal fell the most, down a percent each while auto and pharma dropped 0.8 percent each.
Nifty Bank shed half a percent.
