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Fears of a global trade war and of an interest rate hike by the US Federal Reserve rattled the Nifty, India’s benchmark share index, causing it to close below the psychological 10,000-mark for the first time in nearly five months.
The Sensex and the Nifty, which have been on a downward trend since the start of February, hit fresh lows on Friday to close decisively below their 200-day moving average, which is an important indicator of stock market trends and is seen as a key support level in a falling market.
“Any bounce in the Sensex and the Nifty from the current levels may be unsustainable in the long run, given the fragile global cues and domestic woes in the banking sector,” said Rohit Srivastava, fund manager, Sharekhan-BNP Paribas.
“A market rally like the one seen in 2017 can only return if there is a dramatic change in corporate earnings and calm in the bond markets for a prolonged period. 9,700 could be a key support to avert a major crash and 10,300 in the Nifty may halt an upward run.”
The Sensex fell by 410 points to close at 32,596. The Nifty was down 116.70 points to close at 9,998.05. The carnage in equity markets, which spread from the US overnight to Japan and to Europe, was seen as an immediate catalyst for the fall.
Higher US tariffs
Talk of a global trade war first surfaced when Donald Trump was elected US President in November 2016. On Friday, those fears became real as Trump, having spent a little over a year in office, fired a forceful trade salvo at China by introducing higher tariffs on goods worth $60 billion imported from the Asian manufacturing giant.
Also, the fact that US Federal Reserve hiked its interest rates by another 25bps this week weighed on sentiment, especially hitting emerging markets hard as they are known to be the chief casualty of any rate hikes in the US.
The Dow Jones, S&P and Nasdaq, benchmark equity indices of the US, crashed 2.5-3 per cent on Thursday, sending jitters in financial markets around the world. It is only the second time in nearly two years that US markets have witnessed such a fall.
“So far, the markets were in a scenario where the absence of bad news was good news, but all the bad news that had earlier been suppressed is now coming out at once. Key technical levels in the Nifty have been breached, which has scared traders,” said Sudip Bandyopadhyay, promoter and chairman Inditrade Capital.
“Wealthy traders and fund managers were booking profits they had made from last year’s rally on the consideration that, going forward, they will be hit by the long-term capital gains tax.”
LoU scam impact
Brokers say that rumours of the imminent arrest of leading executives of top private sector banks and the spread of the scale of the LoU scam by several thousands of crore had disheartened large traders, who are now unwilling to carry long positions.
Also, the rise in the number of IPOs in the past 6-8 months had sucked out liquidity.
“India’s macro economic scenario may change with crude oil price running higher, and this year could be difficult for stock markets,” said G Devenathan, independent equity analyst.
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