Sensex, Nifty erase morning gains; 5 reasons behind the crash

Market benchmarks, Sensex and Nifty, erased all gains of the morning session and witnessed strong losses in the second half of the trade, looking on course to extend their losing run into the third consecutive session.

At 1300 hours, Sensex was at 39,322, down 428 points, or 1.08 percent, while Nifty was at 11,566, down 105 points, or 0.90 percent.

BSE Midcap index was 0.08 percent up and the Smallcap index was 0.58 percent down at that time.

Among the sectoral indices, BSE Telecom fell over 3 percent. Bankex, Finance and Auto indices fell over a percent each.

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Here are 5 factors that triggered a selloff in the market:

COVID specter: COVID-19 cases are rising globally, forcing many countries to announce fresh lockdowns which made investors nervous.

Analysts are of the view that the market sentiment may remain fragile for the coming days as investors may stay away from riskier equities, assessing how the second wave of COVID cases develops.

Weak global cues: Global cues, too, were lacklustre. As per media reports, Asian shares fell on Friday as investors took money off the table ahead of next week’s US presidential election while uncertainty over the global economic outlook grew due to rising COVID cases.

Among Asian peers, Hang Seng and Kospi plunged over 2 percent each while the Shanghai Composite Index and Nikkei fell over a percent.

Economic outlook takes a jolt: Contracting for the seventh consecutive month, the output of eight core infrastructure sectors dropped by 0.8 percent in September, mainly due to a decline in production of crude oil, natural gas, refinery products and cement.

The decline in output during the month under review was the lowest since March. Barring coal, electricity and steel, all sectors — crude oil, natural gas, refinery products, fertiliser and cement — recorded negative growth in September 2020.

Moreover, the government’s fiscal deficit rose to Rs 9.14 lakh crore, about 114.8 percent of the annual budget estimate, during the first six months of the current financial year, mainly on account of poor revenue realisation.

Selling in bank, financials: Select bank and financial heavyweights contributed the most to the fall in benchmarks.

Shares of ICICI Bank, Kotak Mahindra Bank, HDFC twins and Bajaj Finance were witnessing selling.

Technicals: Experts point out that the market is consolidating with Nifty meeting with resistance around 11850-11900 zone whereas support is seen around 11450-11500 levels.

“India VIX has gained 10% so far this week, which could become a cause of concern if this trend continues as increased volatility is likely to be witnessed ahead of the US Presidential Elections,’ said Aamar Deo Singh, Head Advisory, Angel Broking.

Ajit Mishra, VP – Research, Religare Broking said that there is high uncertainty in global markets due to a recent surge in COVID cases. A decline below 11,600 in Nifty would pave way for further slide.

“In the case of a rebound, 11,750 would act as a hurdle. Traders should limit their leveraged positions and maintain a balanced approach,” Mishra said.