Nifty tests 10,000-mark; 5 factors that are weighing on market

The market erased all its previous day's gains with the BSE Sensex trading below 34,000 levels and the Nifty50 testing the psychological 10,000-mark.

The BSE Sensex was down 380.51 points, or 1.11 percent, at 33,866.54, while the Nifty50 declined 110.70 points, or 1.09 percent, to 10,005.50 after testing 9,992.65 intraday.

Here are 5 factors weighed on the market:

Fed To Hold Interest Rates Near Zero Till 2022

The Federal Reserve on June 10 has maintained its funds rate in a target range of 0.00-0.25 percent and said majority of its policymakers indicated no rate hike till 2022, i.e. for next two-and-half year.

The Fed also said it would continue buying bonds to keep borrowing rates low and support the US economy that hit badly by the COVID-19-led lockdown, with high unemployment rate.

This year the US economy is expected to contract 6.5 percent, said the Fed, adding the economy will grow 5 percent in 2021. The central bank targets unemployment rate near 9.3 percent by the end of 2020, against 13.3 percent currently.

Experts feel the rate hike is largely unlikely in coming years as the US wants to get back jobs and economy on track to pre-COVID levels.

Global Correction

Globally markets corrected after the Fed's intention to keep interest rates zero till 2020 or till the economy shows strong recovery and forecast of US economy contracting this year before bouncing back next year.

Among Asian peers, Australia's ASX 200 was down 3 percent and Japan's Nikkei fell around 2.8 percent, while Hong Kong's Hang Seng and South Korea's Kospi were down 1.7 percent each. China's Shanghai Composite declined 0.9 percent.

Dow Jones corrected 1 percent and S&P 500 lost half a percent at close in the overnight. Dow Jones futures fell plunged another 460 points, indicating weak opening in today's trade later.

European markets are also expected to be open lower today as FTSE futures traded 1.9 percent lower and DAX futures 1.6 percent down at the time of publishing this copy.

Banking & Financials Correct

Banking & financials have remained key drivers for the market on the upside as well as downside. Nifty Bank and Financial Service indices were down more than 1 percent today, dragging the entire market itself. However, the Nifty Bank index had rallied more than 20 percent in the recent rally.

Even though the hope rally on the back of re-opening of economy lifted these stocks, the actual problem of NPA is still worrying investors.

"The main reason banking and financials sharply bounced back after the lockdown is because they had fallen the hardest in the recent mayhem and therefore a bounce back was natural. Nonetheless, this rally may not sustain as there is little clarity on the extent of bad assets in the moratorium book and that clarity isn't going to emerge before September's quarterly results (courtesy RBI's relaxant norms for asset classification)," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.

"Additionally, PSUs too are capital hungry and given the recurring dilution in this space they might not witness outperformance for atleast the next 2 quarters. Going ahead, we might not see confidence returning in these sectors and therefore they are expected to perform inline with the market with a downward bias," he said.

S&P Rating Brings A Relief, But Raises Concerns

The affirmation of India sovereign rating by S&P Global Ratings on June 10 after downgrade by Moody's last week has come as a relief, but the rating agency raised concerns with respect to fiscal deficit, weakness in financial sector etc.

Even the RBI also in its monthly bulletin said though the regulatory and liquidity measures taken by them (RBI) have had a salutary impact on financial markets, stress is still visible in certain areas of the market.

S&P forecasts India's economy to shrink by 5 percent this fiscal, before showing 8.5 percent growth in FY22.

"We could raise India's rating if government significantly cuts fiscal gaps, but see pressure on India rating if growth doesn't recover from 2021 and if government deficits exceed our forecast," the agency said, adding it sees India FY21 general government fiscal deficit at 11 percent of GDP.

S&P in its report stated that though the recent India reforms suggest constructive policymaking path, the risks to India's long-term growth outlook have intensified.

Hence, weak financial sector, rigid labour markets and weak private investment could hamper India recovery if not addressed, it feels.

Technical View

The Nifty50 as well as Bank Nifty formed bearish candle on daily charts as current rates are below their opening levels.

Overall the indices after their recent rally have been in a tight range, hence experts feel unless and until indices decisively break the range on either side, the consolidative trend may continue.

"The markets have turned rangebound and this could also be because it is the weekly derivative expiry. We are stuck in a range between 10,000 and 10,150. It is a very narrow range but if we trigger either, we should get back into a trending market," Manish Hathiramani, Proprietary Index Trader and Technical Analyst at Deen Dayal Investments told Moneycontrol.

"If we break 10,000, we should go down further to 9,850. If we cross 10,150, we should go up to 10,300," he said.