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Sensex, Nifty tank 1% each: 5 factors behind market selloff.

Date: 20-08-2022
Subject: Sensex, Nifty tank 1% each: 5 factors behind market selloff
Benchmark indices saw profit booking in Friday's trade, with Nifty50 witnessing selling pressure after coming close to the 18,000-mark.

The Nifty50 snapped its longest winning streak in nearly two years as the 50-pack index hit the sub-17,800 level, while the BSE barometer Sensex cracked 652 points to end the session at 59,646.15. Both indices ended over 1% lower from their previous close.
27 shares from the 30-share pack settled with cuts led by IndusInd Bank NSE -3.78 %, falling over 4 per cent, Bajaj twins, Tata Steel, SBI NSE -2.25 %, Maruti, ICICI Bank NSE -1.66 %, and Reliance falling over 2-3 per cent each. NTPC, M&M, HUL, Kotak Mahindra Bank, Titan, and Sun Pharma also settled sharply lower.

L&T, Infosys and TCS were the only stocks to settle in the black. Sectorally, except capital goods and power all other sectoral indices ended the session in red--with Nifty Bank and Auto falling 1.7 and 1.4 per cent. Nifty Realty also tumbled 2 per cent Nifty. Pharma, FMCG, and oil and gas too sank over 1 per cent.

The combined market capitalisation of all BSE-listed companies fell Rs 2.94 lakh crore to Rs 277.58 lakh crore from a record Rs 280.52 lakh crore a day ago.

Broader markets also mirrored the fall in benchmarks as BSE midcap and smallcap indices shed 1 per cent each.

"The recent rally of the dollar index and FIIs turning net sellers has surprised bulls. Broad-based selling was witnessed with the index heavyweights dragging the index further down," said Vinod Nair, Head of Research at Geojit Financial Services. The benchmark indices, however, managed to gained for the fifth week in a row.

Here are the key reasons why the market was weak today:

Selling was observed in index heavyweight Reliance Industries NSE -1.78 % and a few banking names such as ICICI Bank, HDFC Bank NSE -1.23 % and SBI. Reliance Industries was trading 1.35 per cent lower at Rs 2,624.60. The government on Thursday hiked the windfall profit tax on the export of diesel to Rs 7 per litre and brought back a tax on jet fuel exports, but slashed the levy on domesticall ..

Among banks, IndusInd Bank slid 3.5 per cent. SBI, ICICI Bank, HDFC Bank fell 2.4 per cent. Among financials, Bajaj Finserv NSE -3.08 % and Bajaj Finance NSE -2.49 % fell over 2 per cent each.

The dollar climbed to a fresh one-month high against a basket of major peers on Friday. The dollar index rose 0.121 per cent to 107.620, after earlier touching 107.68, its highest since July 18, Reuters reported.

The gauge is on track for a 1.89 per cent rally this week, which would be its best weekly performance since June 12, after St. Louis Fed President James Bullard said he is leaning toward supporting a third straight 75-basis-point interest rate hike in September, while San Francisco Fed colleague Mary Daly said hiking rates by 50 or 75 basis points next month would be "reasonable."

The dollar index shares an inverse relationship with equities.

Technical weakness
The bulls were looking tired, given Nifty50 had pushed its winning run to eighth straight session by Thursday. The ‘RSI Smoothed’ oscillator had given a negative divergence on the lower time frame chart in the overbought zone, which analysts said was the first sign of caution.

Besides, the last couple of sessions had seen the formation of small indecisive candles. The selling on Friday was seen when the Nifty50 was at a kissing distance from the 18,000 level, suggesting traders were jittery near the key mark.

The market has bounced back smartly in the last one-and-a-half month, wiping out its entire decline year-to-date. With this rally, Nifty50 now trades at 21 times FY23E EPS, comfortably above its long-term average, Motilal Oswal said.

"The elevated valuations do not justify further run-up in markets. Some profit booking and diversion of money to fixed income may be considered as a short-term strategy. Buy on dips can be considered in high-quality financials, leading names in capital goods and autos," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Motilal Oswal in a strategy note said the upside from here on will be a function of stability in global and local macros, and continued earnings delivery versus expectations.

There are fears that a sharp rise in the dollar may result in risk-off trade in emerging market equities. On Thursday, FPIs were net sellers of domestic stocks to the tune of Rs 1706 crore.

Vijayakumar said a sudden sharp spike in the dollar index to will impact capital flows to emerging markets such as India. "The consistent FPI buying seen in August is likely to lose steam impacting sentiments," he said. Data showed FPIs have bought equities worth Rs 41,024 crore so far in August.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Source Name:-Economic Times


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