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Business News/ Markets / Stock Markets/  Nifty 50, Sensex drop by about half a percent each: 5 key reasons for the market fall - explained
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Nifty 50, Sensex drop by about half a percent each: 5 key reasons for the market fall - explained

Sharp gains in the US Treasury yields and dollar have hit the equity markets across the globe. Moreover, market participants appear to be cautious ahead of the RBI MPC meeting outcome.

Nifty 50 and Sensex fell over half a per cent each in morning trade. AFP PHOTO/Ralphson DAVID (AFP)Premium
Nifty 50 and Sensex fell over half a per cent each in morning trade. AFP PHOTO/Ralphson DAVID (AFP)

Nifty 50 and Sensex fell by about half a per cent each on Wednesday (October 4) amid weak global cues. Nifty 50 opened at 19,446.30 against the previous close of 19,528.75 and fell about a per cent to hit its intraday low of 19,333.60. The Sensex opened at 65,330.65 against the previous close of 65,512.10 and declined nearly by a per cent to the intraday low of 64,878.77.

Nifty 50 finally ended the day at 19,436.10, down 93 points, or 0.47 per cent, while the 30-share pack Sensex closed with a loss of 286 points, or 0.44 per cent, at 65,226.04.

Mid and smallcaps underperformed the benchmarks as the BSE Midcap index closed with a solid loss of 1.52 per cent while the BSE Smallcap index dropped 0.96 per cent.

Also Read: Market close: Nifty 50, Sensex extend losses into second consecutive session; investors lose over 2 lakh crore in a day

Experts point out below five key factors that are keeping the market down:

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1. Soaring bond yields, dollar: Sharp gains in the US Treasury yields and dollar have hit the equity markets across the globe.

Reuters reported that Asian stocks sank to 11-month lows on Wednesday as the US yields reached 16-year high levels. The spike in Treasury yields lifted the dollar to new heights.

Stronger-than-expected US job openings data and the expectations of one more interest rate hike by the end of the year have shot up bond yields, dealing a blow to riskier equities.

2. Caution ahead of RBI MPC outcome: Market participants appear to be cautious ahead of the RBI (Reserve Bank of India) MPC (monetary policy committee) meeting outcome. Even though a status quo by the RBI is widely expected, investors await what the central bank thinks about inflation trajectory and economic growth.

Also Read: RBI likely to maintain status quo on policy rates as inflation still high: Experts

Also Read: Here are risks that the central bank must keep in mind

India's economy is expected to grow at a healthy pace even though the global economic outlook is weak. Recently, as Mint reported the World Bank kept its economic growth projection for India at 6.3 per cent for FY24, the same as its previous April estimate. However, it attributed the moderation from FY23’s 7.2 per cent growth to adverse global factors affecting foreign demand and consumption growth.

Also Read: RBI monetary policy: Central bank likely to hold interest rates, policy stance-Barclays

On the other hand, global economic growth is set to slow down over the medium term due to high global interest rates, geopolitical tensions, and sluggish global demand.

Also Read: World Bank sees India GDP growth for FY24 at 6.3% as economy shows resilience amid challenging environment

3. Sustained FII selling: Foreign institutional investors (FIIs) have been offloading Indian equities after the recent gains. Rising bond yields and the dollar have acted as catalysts for the selloff.

NSDL data show foreign investors sold Indian equities worth 14,768 crore in September and 2,868 crore in October so far.

"The sustained rise in the US bond yields, which has triggered continuous FII selling, is showing no signs of abating. The dollar index is now clearly above 107 and the US 10-year bond yield is at 4.83 per cent. This means FIIs will continue to sell and the bulls will be on the back foot," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

4. Interest rate woes: Fresh concerns over interest hikes by the US Fed have emerged, keeping the markets on tenterhooks. US job openings rose more than expected in August showing the world's largest economy remains resilient and the possibility of rate hikes is high since the Fed wants inflation to come down to its target of below 2 per cent.

"Fresh concerns over interest rate hikes have emerged after the jobs report in the US showed a bigger-than-expected number of job openings last month," said Prashanth Tapse, Senior VP (Research), Mehta Equities.

5. Technical factors: Nifty 50 is showing signs of weakness. In the previous session, Nifty formed a bearish candle on daily charts.

Tapse believes for the bulls now, 19,580 could be the immediate resistance zone, above which the index could move up to 19,700-19,725. On the other hand, 19,450 and 19,480 would act as a strong support zone for the traders. Below 19,450, the selling pressure is likely to accelerate and the index could slip to 19,375-19,350.

"As bears tighten their grip, elevating the chances of an 18,600 move, we are rooting for the prospects of a recovery move. If Nifty manages to get back above 19,460 after early weakness. The inability to scale 19,540 on the bounce could extend down move, but not exceeding 19,340," said Anand James, Chief Market Strategist at Geojit Financial Services.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 04 Oct 2023, 10:54 AM IST
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