Sensex down 7% this week, sees the second-worst fall this year— these are the reasons behind the sell-off

• Sensex plunged over 1,100 points, while the NSE Nifty crashed 326.30 points to close at 10,805 points on Thursday
• Analysts explain the reasons behind Sensex losing over 2500 points in one week— and here’s why this may continue in the next session.
• Check out the latest news and updates on Business Insider.

The blood-bath in the Indian stock-market continued with markets ending lower for the sixth straight session today. The 30-share BSE index, Sensex plunged over 1,100 points, while the NSE Nifty crashed 326.30 points to close at 10,805.55 points. The selloff was led by banking, IT and metal stocks.

The sell-off today eroded nearly ₹4 lakh crore from investors’ wealth in a single trading session. Fears of fresh lockdown in Europe and heavy FII outflows weighed on investor sentiment leading to a 7% fall this week in the Indian stock market. This is the second-worst fall this year after the recent market crash in March.

These were the top losers and gainers in the Nifty pack at the end of the trade:

These are the reasons behind Sensex losing over 2500 points in one week, according to top analysts — and here’s why they believe more weakness is in store.

What led to the sharp fall?

• Weak global cues

Global indices across Asia felt the pain in trade today as concerns over the rising coronavirus cases across the world keps investors jittery. Indian indices fell the most amongst emerging Asian markets today. According to Arun Kumar, Market Strategist at Reliance Securities, the current deterioration in the Indian equities is due to negative global cues followed by relatively heavy selling by FIIs on the cash segment.

“The Information Technology sector, led by TCS & Infosys lost almost eight days gains in just one trading session. Additionally, the bellwether sector Banks also failed to garner any buying interest and collapsed as bears pressed ahead with their selling pressure. The Nifty 50 has edged closer to its long-term average of 10,760 (200 DMA). Any fresh selling below this point would damage the medium-term sentiments of the market,” he said.

• Resurgence of coronavirus cases

Analysts believe the looming COVID-19 uncertainty in the US and Europe also contributed to the downfall in the global market. "Given the uncertainty to economic outlook from the second wave of covid, US presidential elections and the US stimulus package, investors are shunning risky assets. Commodities and equities have sold off," said Abhishek Goenka, Founder and CEO, IFA Global.

• Strong dollar and FII outflows

“The ‘Dollar Index’ which we had recently highlighted for its breakout has moved higher which too is not good for the equity markets. The immediate support for Nifty is placed in the range of 10800-10750 followed by 10670, whereas 11000-11100 will be seen as resistance on pullback moves. Thus, we continue with our advice for traders to stay light and avoid overnight positions,” Ruchit Jain Senior Analyst — Technical and Derivatives at Angel Broking said.

• F&O expiry jitters

Calling it one of the “worst expiry days” for Indian markets in the recent past, Jain from Angel Broking said “There was no respite for any of the indexes as all the sectors, including the recent outperformers took a sharp knock.”

And, according to Vinod Nair, Head of Research at Geojit Financial Services, “The uncertainty regarding an economic recovery, the unabated rise in virus infections, and today being derivatives expiry day, all contributed to the negativity.”

Analysts see further weakness in the market

Sachin Jain, an analyst at ICICI Securities, said the year so far has been a tale of two halves with the first half in February and March witnessing a sharp unprecedented fall, while the second half since then witnessed a sharp recovery.

“The correction in the range of 10-15%, particularly in mid-and small-caps, should not be construed as negative”. But Jain remained positive on the overall outlook of the market and recommended the buy on dips investment strategy.

According to Jain at the moment, investors should avoid any aggressive contra trades, “as there are no positive signs and hence, we continue with our cautious approach on the markets. There could be some pullback from here as we have approached the ‘200 DMA’ which coincides with some important retracement levels as well. However, markets are likely to face selling pressure on pullback moves.”

The Axis Direct daily market note also highlighted “Nifty is trading below 20 and 50 days SMA, which indicates negative bias in the short term. The daily strength indicator RSI has turned negative from the overbought territory and is below its reference line indicating sustained downtrend.”

SEE ALSO: Three more IPOs to hit the Indian market next week — Mazagon Dock Shipbuilders, UTI AMC and Likhitha Infrastructure

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