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Sensex plunges 416 pts, Nifty below 12,250: Key factors behind market pain

Market participants also remained on the sidelines ahead of the Union Budget.

, ETMarkets.com|
Last Updated: Jan 20, 2020, 05.37 PM IST
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Rising oil prices aggravated concerns over the already widening fiscal deficit.
Mumbai: Benchmark equity indices Sensex and Nifty dropped nearly 1 per cent on Monday, after recording new highs in opening trade, as December quarter earnings of index heavyweights failed to spring up any major positive surprises. A spike in crude prices and event risk of the Union Budget also kept investor sentiment subdued.

The 30-share Sensex closed 0.99 per cent or 416 points lower at 41,529, while the 50-share Nifty closed 0.98 per cent or 122 points lower at 12,231.

Here are the key factors that contributed to Mondays’ fall:

Unimpressive Q3 show: The third-quarter corporate report cards of index heavyweights such as Reliance Industries, HDFC Bank and Tata Consultancy Services (TCS) failed to impress investors. These stocks were down 3.08 per cent, 1.80 per cent and 2.16 per cent, respectively, weighing heavily on the index meltdown.

Higher crude oil prices: Rising oil prices aggravated concerns over the already widening fiscal deficit. Oil jumped back above the $65 a barrel mark as supply disruptions in Iraq and Libya reignited concerns over the market’s vulnerability to geopolitical risk in key production regions, Bloomberg reported.

Weak start to European markets: European shares retreated on Monday after striking a record closing high in the previous session, as investors paused before launching into a week packed with economic data and the European Central Bank’s first policy meeting of the year, Reuters reported. The pan-European STOXX 600 index was down about 0.3 per cent, after gaining nearly 1% on Friday.

Expensive valuations: Benchmark indices Sensex and Nifty could not hold on to the record-high levels as earnings have failed to catch up with the prices. The stretched valuations drove the market lower.

All eyes on Budget: Market participants also remained on the sidelines ahead of the Union Budget on February 1. It remains to be seen how the government walks the tightrope of boosting growth in a slowing economy, whilst containing the fiscal deficit.

Market at a glance:
Earlier in the day, Sensex rose as much as 0.78 per cent or 328.50 points to hit a record high of 42,273.87 while Nifty climbed 0.63 per cent or 78.15 points to an all-time high of 12,430.50.

The market, however, soon gave up all the gains and closed 1 per cent lower.

Market breadth was very weak, as declining shares outnumbered advancing ones in the ratio of nearly 3:5 on the BSE.

The broader market fared marginally better than benchmark. The NSE Midcap index dropped 0.57 per cent and BSE Smallcap index 0.39 per cent.

BSE Energy index was the top sectoral loser, down 2.67 per cent.

Twenty-one of the 30 Sensex stocks closed lower. Reliance Industries, HDFC Bank and Kotak Mahindra Bank contributed the most to Sensex’s losses.

Power Grid, Bharti Airtel, ITC, Asian Paints and ICICI Bank were the top gainers in the Sensex kitty of stocks, rising up to 3.75 per cent.

On the other hand, Kotak Mahindra Bank, RIL, ONGC and TCS were the top losers.

Among off the main-board indices, shares of Vodafone Idea jumped 7.76 per cent as lenders to the telecom operator are factoring in some form of government intervention that will allow the company more time to repay its dues. Meanwhile, those of rival Bharti Airtel advanced 1.85 per cent.

Analysts’ views:
"As expected, the market has approached a consolidation phase due to mildly subdued Q3 results in banking and heavyweights. It is fair to expect this mild consolidation to continue in the short-term after the solid performance of the last one-month with fantastic gains in mid & small caps. For further direction, a lot will depend on the actual budget announcements & broader performance in Q3 result showing gain across the economy."
-- Vinod Nair, Head of Research, Geojit Financial Services

“We continue to remain cautious on the markets given that the indices are near to their peak levels. The expectations from the budget are high this time around given the current economic slowdown. This is likely to drive momentum across sectors. Further, the earnings announcement from corporates is likely to induce stock-specific volatility in the coming sessions. Therefore, we would recommend traders to remain cautious and hedge their risky leveraged positions.”
-- Ajit Mishra, VP - Research, Religare Broking.

Global markets:
The pan-European STOXX 600 index was down about 0.3 per cent, after gaining nearly 1% on Friday.

Asian shares held near a 20-month top even as investors took some money off the table following a strong run recently, while oil jumped to more than a one-week high after two large crude production bases in Libya began shutting down, according to a Reuters report.

MSCI’s broadest index of Asia-Pacific shares outside Japan gave up early gains to be flat, after earlier notching up its highest since June 2018.
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