The Indian benchmark indices, Sensex and Nifty witnessed sharp sell-off and retreated from day’s highs on Monday dragged by weak domestic factors.
The S&P BSE Sensex declined over 1,000 points or 2 percent intraday after hitting the day’s high of 40,010 and the Nifty50 dropped below 11,400 levels.
Selling was seen across the board led by PSU Banks, realty, financials and capital goods sectors. The Nifty Smallcap 100 and Nifty Midcap 100 indices also declined more than 4 percent.
At the close of trade, Sensex plunged 839.02 points or 2.13 percent to 38,628.29 while the Nifty ended at 11,387.50, down 260.10 points or 2.23 percent.
“Nifty broke the levels of 11,500. Today’s low has become an imperative level which will decide the short term direction of this market. If we break 11,300 on a closing basis, the markets might turn negative in the short – medium-term scenario. In order to resume the uptrend, we need to get past 11,600. The next few sessions are going to be a test of discipline, skill and patience. Traders are cautioned not to jump into a trade without weighing the risks associated with the trade. We could see sharp movements,” said Manish Hathiramani, Index Trader and Technical Analyst, Deen Dayal Investments.
Here are the factors that led to this sell-off in the market.
India-China border tensions:
The border tension between India and China escalated near the Ladakh region. According to the Indian Army, Chinese troops on the night of August 29 and 30 violated the previous consensus and carried out provocative military movements to change the status quo.
Indian troops pre-empted this People’s Liberation Army (PLA)’s activity on Southern Bank of Pangong Tso and undertook measures to strengthen its positions.
The Indian indices posted a decent rally for three consecutive months since May. The BSE Sensex reclaimed 40,000 in intraday trade while the Nifty50 was also trading around 11,800 before it turned negative. Investors opted to book profits
“The market is overvalued. There maybe a short term correction going ahead. We may see a profit booking,” said Kunj Bansal Partner & CIO, Sarthi Group.
Weak GDP Data expected:
Investors will keenly watch the first-quarter GDP numbers to be released by Central Statistical Organisation (CSO) later today. The Indian economy is likely to see a GDP contraction of nearly 20 percent in Q1FY21, according to CNBC-TV18 Poll.
Nervousness over SEBI’s new margin rule
Market participants also reacted to the Securities & Exchange Board of India’s (SEBI) new margin rules that will come into effect from tomorrow, September 1.
Under the new proposed system, brokers will have to collect margin from investors upfront for both the buying and selling of securities. Failure to do so will attract a penalty. Also, the securities in the Demat account will not automatically become available to receive margins.
Further, the brokers with client securities pledged to them via title transfer will have to migrate to new system. The brokers say that they are yet not operationally ready to shift towards the new mechanism and need more time.
It might be possible that the brokers have asked their clients today to cut their positions which triggered the selloff in the market.