Why are the markets falling today? Bears tightened their grip on the stock markets very firmly as Sensex fell more than 1,000 points a day, while Nifty broke below the 17,000 zone on Monday, September 30. Following today’s market crash, investors over Rs 7 lakh crore got poorer as the market capitalization of all BSE-listed companies fell to Rs 269.86 lakh crore.
The weakness also spread to broader markets as the Nifty MidCap 100 and Nifty SmallCap 100 indices fell more than 3 percent and 4 percent, respectively. The volatility meter, India VIX, meanwhile rose more than 8 percent.
All sectors plunged into the sea of red with the Nifty Auto, Nifty Metal, Nifty Media and Nifty Realty indices taking the biggest hit.
Main factors pulling the markets down
The Dow Industrials was poised to confirm a bear market as a deeper downturn in euro-zone corporate activity, and US corporate activity, which shrank for the third straight month in September, caused Wall Street to wallow in a sea of red. . The Dow Jones Industrial Average fell 2.35 percent on Friday, making it the first major U.S. stock index to fall below its June trough on an intraday basis. The S&P 500 lost 2.50 percent and the Nasdaq Composite lost 2.55 percent on Friday.
Of the Asian names, Nikkei, Taiwan and Kospi are each down more than two percent, while Shanghai and Hang Seng are trading flat today. SGX Nifty is down 260.50 points or 1.5 percent to 17,071.50 today.
Amid surges in US bond yields and the US dollar index, the rupee opened 0.68 percent lower on Monday, hitting a new all-time low of 81.55 against the greenback.
The local unit had hit a record low of 81,250 on Friday, prompting the Reserve Bank of India (RBI) to sell dollars, according to traders. The intervention of the RBI had caused the rupee to rise briefly on Friday.
The rupee will come under pressure as the dollar index could rise significantly as a result of the US Fed’s commitment to raise interest rates in a more aggressive manner in the coming months, which could lead to the rupee falling further to 82 to 83.5 levels,” Mohit Nigam, head – PMS, Hem Securities, said.
Fears of US Fed rate hike
While the US Fed’s rate hike of 75 basis points was expected, the continued aggressive stance that points to a 125 basis point hike in the next two policy meetings by December 2022 has shocked the market.
As a result of the sharp rise in US bond yields, Indian bond yields have also risen sharply, with 2-year bond yields reaching a 3-year high. The yield on ten-year government bonds of India was 7.4173 percent.
The yield on US 2-year bonds rose 1.3 percent to about 4.26, while the 10-year Treasury benchmark was around 3.75, its highest level since 2010.
RBI to raise rates again
The Reserve Bank of India is set to raise interest rates again on Friday this week, with a slim majority of economists expecting a half-point increase in a Reuters poll and a few others a smaller increase of 35 basis points. The RBI lagged many of its global competitors, despite inflation remaining above the upper end of its target range of 2-6 percent throughout the year. It has raised interest rates in three separate moves since May, one unplanned, to a total of 140 basis points and the main repo rate at 5.40 percent.
Prashanth Tapse, research analyst, senior VP of research, Mehta Equities Ltd., said: “Now the street will eagerly await the RBI September MPC Meet outcome which trickles in on Friday the 30th. Against the backdrop of heightened inflation concerns, the MPC will repo rate likely to increase by 25-35 basis points. That said, against a background of depreciating INR – a 50 basis point increase cannot be ruled out without a change in inflation and full-year growth forecast.”
Japan’s factory activity
Manufacturing activity growth in Japan hit a 20-month low in September as companies grappled with a global slowdown and pressure from high energy and commodity prices was exacerbated by a weak yen.
Indian markets have outperformed global markets over the past three months. Kush Ghodasara, independent market expert from CMT, said: “With interest rates rising over Western countries, FII would like to see gains in emerging markets and only Indian stock markets have shown good returns so FII sales could become intense.”
Helpful Technical Perspectives
Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One, said: “Weakness in global markets and upcoming key domestic data have sparked a sense of hesitation among market participants. As we witnessed a decisive breakthrough below the key support zone in Nifty, it should not be ruled out that it tests the immediate swing low of 17,150 odd zone, while the sacred support is at the psychological figure of 17,000.On the other hand, a series of resistances were seen from 17,500 to 17,800 in the same period. ”
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