Why Nifty50, Sensex fell nearly 1% today
On January 8, the Indian stock market experienced significant losses, with investors losing nearly Rs. 3 lakh crore in market capitalization. Nifty50 crashed nearly 200 points, or 0.91%, to 21,513, while Sensex fell over 670 points, or 0.93%, to 71,355. The market's selling pressure caused India VIX, a measure of volatility, to jump by almost 7%, crossing the 13-point mark. It reached a peak of 13.5075 points. Here are some of the major factors that prompted investors to book profits.
Diminishing rate cut hopes
Hopes for an early rate cut by the US Federal Reserve are fading due to recent data showing a resilient US labor market. The Fed had earlier guided for three rate cuts in 2024. However, the strong jobs report diminished prospects of an early cut in interest rates by the US Fed. Market focus now shifts to US inflation data expected on Thursday. This data too can influence market expectations on the Fed's move on interest rates.
Investors cautious ahead of Q3 earnings
Market sentiment remains cautious ahead of December quarter earnings of Indian companies. IT giants Infosys and TCS are set to report their Q3 results on January 11. Vinod Nair, Research Head at Geojit Financial Services, as told to LiveMint, stated, "In the near term, investors' trade positions will be more inclined toward the upcoming result season." "While the outset may be tempered by lower expectations in the IT sector, the overall forecast for earnings growth remains optimistic, projecting double-digit figures."
Weak global cues
Major Asian stock indices, such as the Shanghai Composite Index, Hang Seng, and KOSPI, closed in the red today, impacting domestic market sentiment. European indices FTSE, CAC, and DAX also traded lower when the Indian market ended. Reuters reported that "Asian shares slipped into the red on Monday as Chinese stocks extended their recent retreat, and investors braced for US inflation data and a corporate reporting season where robust results are needed to justify high valuations."
Rising geopolitical tensions
Investors are keeping a close eye on geopolitical events right now. In particular, the targeting of commercial ships in the Red Sea by Houthi rebels has become the cause of a major concern. The Suez Canal in the Red Sea serves as the crucial entry point for vessels, which plays a pivotal role in facilitating the movement of goods between Asia and Europe.
Technical factors indicate change in market sentiment
Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities, noted that Nifty50 ended the day close to its support at 21,500 and the short-term 14-day moving average, accompanied by a bearish engulfing candlestick pattern. Aditya Gaggar, Director of Progressive Shares, pointed out that a bearish engulfing pattern around record levels indicates a high probability of a trend reversal. According to Gaggar, Nifty50 may retest its strong support zone of 21,370-21,400 while the higher side will be capped at 21,650.
