Sensex below 31,000, Nifty tests 9,000: 5 factors weighing on D-St

Crude oil price crash, along with weak global cues, led to a sharp selloff in markets across the globe, including India. The S&P BSE Sensex fell more than 1,000 points in the morning trade to breach 31,000 on the downside though the Nifty50 was holding 9,000 levels.

Sectorally, the action was seen in healthcare and FMCG stocks while selling pressure was visible in metal, auto, banks and finance stocks.

Here is a list of Top 4 factors that could be weighing on D-Street:

Crude oil crash

Crash in crude oil prices would be a positive for India, which is a net importer of the fuel, but it also signifies a fall in global demand. Fall in crude prices resulted in a knee-jerk reaction in equities across the globe and fuelled safe-haven buying.

“It's a grim situation playing out in the oil markets, grabbing eyeballs of the entire investor fraternity and defying logic. The absolute collapse of WTI prices is primarily owing to the expiry of May WTI contracts, alongside the significant demand destruction due to lockdowns in several countries and supply glut in oil markets,” Sugandha Sachdeva, VP-Metals, Energy & Currency Research, Religare Broking Ltd told Moneycontrol.

The US benchmark West Texas Intermediate (WTI) May contract’s collapse into negative territory is a consequence of the government’s refusal to regulate oil production and impose mandatory cuts, despite calls to do so during the G20 recent meeting that had led to historic cuts of 9.7 million bpd by the OPEC+ alliance.

“The negative price means that producers are willing to pay a certain amount of money-- $37.63/bbl at Monday’s close--to have the oil taken away from them, that the excess supplies have exceeded the capacity to store them,” Yaw Yan Chong, Director, Oil Research (Asia), Refinitiv, told Moneycontrol.

“This is a consequence of the still-heavy production coming out of the US despite the sharp fall in demand globally and specifically in the US, with storage tanks in the country filling fast and running out of capacity.”

WTI crude for May delivery was up $39 in thin trade at $1.37 a barrel after settling down at a discount of $37.63 a barrel in the previous session, said a Reuters report.

Indian market started off on a muted note, with most Asian markets trading firmly in the red. Asian equity markets followed Wall Street lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell half a percent. Japan’s Nikkei fell 1 percent, while bonds and the dollar held gains, said a Reuters report.

Rise in COVID-19 cases, ‘longer’ lockdown possible

India’s count of confirmed coronavirus infections crossed 18,500 as on April 21, a jump of 1,300 cases in a single day. The number of deaths has risen to 590, according to data from the health and family welfare ministry.

Global brokerage firm UBS is of the view that the lockdown in urban areas may be longer than May 3. If the lockdown extends, it would have an adverse impact on India's growth rate.

"As per latest IMF projections, global GDP is likely to shrink by 3% in CY20 led by -5.9% degrowth in US and -7.5% in Euro Area. Based on current status of global lockdown, economies may report very poor GDP numbers for the June quarter. If the Covid-19 situation prolongs or there is a second wave of the pandemic, then it will cause further slowdown," Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.

"Developed markets have recovered sharply on the back of aggressive fiscal and monetary stimulus packages. However, the global impact on businesses and earnings is still to be seen and will come forth during the result season.”

Muted March quarter for India Inc

Results from top two bellwethers-- TCS and Infosys-- failed to revive the investor sentiment. Infosys management suspended both revenue and margin guidances, citing COVID-19 induced disruption.

At a time when GDP growth is likely to fall under 2 percent, many fear downward revision to earnings estimates for FY21/22 amid lockdown, which has brought economic activity to a halt.

“As per our latest projections, we expect India’s FY21 GDP growth to be 0.4% (down from ~4.9% in FY20E). The YoY likely fall in GDP will be mainly due to the de-growth in industrial activity (-3.6%) and within the industrial activity, it will be the sharp fall in manufacturing activity (-6.6%),” Oza said.

“As of now we are expecting FY20 & FY21 Nifty earnings to grow by 6% and 6.7%, respectively. Nonetheless, we see high downward risk to our FY21E with further downgrades in earnings of banks and oil & gas sectors.”

Technical view

The Nifty50 fell below the swing low of 9,091 recorded on April 17, which fuelled selling pressure. The next big support for the index is placed at 9,000-8,800. Experts say it is still a buy-on-dips market and dips towards 8,822 could be used to go long.

“On the downside, we believe immediate support is placed at 8,800 as it is the confluence of a) 38.2% retracement of ongoing pullback (9,390–8,055), placed at 8,880 coincided with b) last week’s low is placed at 8,822,” ICICIdirect said in a report.

“Post gap down opening, we expect pullback attempt would be seen from Friday’s low (9100). Hence, intraday dip towards 9070 - 9100 should be used to create a long position for 9195,” it said.