Sensex nosedives 870 pts, Nifty below 50-EMA; 5 factors weighing on markets

Indian markets suffered losses for the second consecutive day in a row on July 8. Sensex nosedived more than 850 points intraday as bears took control of D-Street while Nifty broke below 11,600 and breached its crucial support at 50-day exponential moving average (EMA) placed at 11,722.

The fall in the index was led by banks especially the public sector ones, followed by realty, capital goods, oil & gas, and power index stocks. The Nifty Bank fell more than 2 percent in intraday trade.

The broader market also fell over 2 percent – the S&P BSE Midcap index was down 2.25 percent while the S&P BSE Smallcap index was down 2.7 percent.

Top Sensex losers include companies like Bajaj Finance, ONGC, Hero MotoCorp, L&T, and Maruti Suzuki.

We have collated a list of top 5 factors which could be weighing on markets:

Weak Asian markets| Morgan Stanley downgrades global equities:

Indian markets started trading with weak global cues. Asian market fell after strong US jobs data tempered expectations for a Fed rate cut.

Share sentiment was also dampened by US investment bank Morgan Stanley’s decision to reduce its exposure to global equities due to misgivings about the ability of policy easing to offset weaker economic data, said a Reuters report.

Moreover, Morgan Stanley in a recent report downgraded global equities from equal-weight to underweight as it said the upside was fairly limited from current levels.

Also read: Morgan Stanley downgrades global equities to underweight, says upside limited

Tax on FPIs could go up:

Reversing their five-month buying streak, foreign investors withdrew a net sum of Rs 475 crore from the capital markets in the first week of July amid global trade tensions and pre-Budget anticipation.

According to a newspaper report, July 5 proposal to raise the tax burden on the mega-rich could also affect about 2,000 foreign funds that are legally equivalent to associations of persons (AOP), a class of income earners required to pay more taxes after new liability slabs were created in the federal budget.

“The increase in effective tax rate on high net worth individuals (those earning more than Rs 2 crore annually), and especially for the super-rich (those earning Rs 5 crore and above annually)—where effective tax rate has been increased by 7 percent—has been a surprise move,” Sampath Reddy, CIO, Bajaj Allianz Life told Moneycontrol.

SEBI to consider raising public holding to 35 percent:

The finance minister’s proposal to ask SEBI to consider raising public holding in listed companies to 35 percent from the current 25 percent is a major supply overhang for markets in the near term, suggest experts.

Assuming the proposal is accepted by SEBI, it would hit IT, PSU as well as MNC stocks, they say. “Many MNCs may consider delisting route if increased public shareholding norms go through,” Amar Ambani, President & Research Head, YES Securities told Moneycontrol.

“We also think that it may be better to allow a higher promoter holding in midcaps and small caps, so as to ensure that they have more skin in the game. Indian capital market is still in developing the state,” he said.

June Quarter earnings:

Indian Inc. will start declaring numbers for the quarter ended June from this week onwards. The earnings are likely to remain muted, fear analysts.

The June quarter earnings are likely to remain muted except for the banking sector, which will likely report strong earnings growth due to a low base. “Excluding the banking sector, we expect net income to decline 6.7 percent YoY,” Kotak Institutional Equities said in a note.

“We expect a weak quarter for (1) automobiles (lower sales volumes and margin compression due to increase in discounts), (2) metals & mining (decline in realizations) and (3) oil, gas & consumable fuels (weak refining margins and adventitious losses for downstream companies),” the note added.

Sanjeev Hota, Head of Research, Sharekhan told Moneycontrol that given the slowdown in the consumption space, rural distress, monsoon delay coupled with ongoing NBFCs crisis, we expect modest earnings performance for India Inc. for April-June Quarter.

Technical Factors:

Nifty slipped below a crucial support at 11,700. The index broke below its crucial support placed at 50-day exponential moving averages, which is a negative sign for the bulls.

The index also recorded a sell signal based on Supertrend indicator. The last time when Supertrend gave a sell signal was back in the month of May when the index touched a low of around 11,110.

“As per our observations, the lowest and highest level of the Elections day outcome (May 23) will act as a trend deciding levels in the long-run for the market,” Shrikant Chouhan, senior VP (Technical Research), Kotak Securities told Moneycontrol.

“If Nifty is forming the possibility of corrective pattern, then it would fall to 11,425, where Nifty has left a bullish gap on the day of an exit poll on May 20, 2019,” he said. Chouhan further added that if Nifty closes below 11,420, then it could even fall down to 11,000.

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