Benchmarks were trading in the overbought zone and analysts expected to sell at highs. Additionally, Asian markets were also largely mixed, offering little support for domestic equities.
The BSE Sensex 30-pack lost over 700 points or 1% to trade below the 59,000 level. Nifty50, meanwhile, was trading 200 points lower near the 17,550 mark.
BSE’s market capitalization stood at Rs 275.61 lakh crore, down Rs 4.91 lakh crore in two sessions from Rs 280.52 lakh crore as of August 18.
Key factors behind the market drop today:
- Dollar firm, US bond yields
The dollar index is now trading near the mid-July high, supported by safe-haven buying amid growing concerns about the health of the European and Chinese economies and largely hawkish comments from Fed officials , analysts said. On Monday, the dollar index was trading flat at the 108 level.
“The dollar index appears to have resumed its uptrend and since stocks generally have an inverse correlation, this would be an additional concern for the market,” said Ruchit Jain, Lead Research, 5paisa.com.
In contrast, US bond yields stood at 2.983% from 2.588 on August 1.
“The dollar index is back above 108 and the US 10-year bond yield is at 2.99%. This is negative for capital flows to emerging markets,” said VK Vijayakumar, strategist chief investment officer at
. One of the reasons the dollar has strengthened lately is the hawkish stance of several US Fed policymakers ahead of the August 25-27 Jackson Hole symposium.
Minutes from the July FOMC meeting suggest that the Fed has begun to recognize the risk of excessive tightening in order to restore price stability, indicating a subtle shift toward sensitivity to both inflation and growth, said Nomura India.
“However, subsequent Fedspeaks of Daly, George, Bullard, Kashkari and Barkin continued to focus primarily on the need to reduce high inflation through a series of additional rate hikes and to keep rates restrictive for a while. some time,” Nomura said.
Open interest in shrewd futures has risen sharply over the past week and open interest was the highest seen in a month, said Raj Deepak Singh, analyst – F&O at ICICIdirect in a weekly note.
As REITs liquidated some long positions, retailers increased their long positions, he said.
“We believe strong hands have taken profits after a big move seen over the series in anticipation of some consolidation,” Singh said in the weekly note, adding that any profit booking should be limited to 17,500. during the settlement week.
“Friday’s decent correction validated our stance to stay light at higher levels and now the way our key indices ended their 8-day winning streak (Friday) does not bode well for the monthly expiration week. If we see some jitters globally, we could see Nifty50 testing lower levels of 17,600-17,450,” Angel One’s Sameet Chavan said this morning.
Muted indices from Asia also weighed on investor sentiment. Asian stocks were mixed after China cut an interest rate that is hurting mortgages as investors wait for the Fed’s annual meeting in Jackson Hole, Wyoming, for rate guidance after minutes from last week’s July U.S. central bank board meeting confirmed plans for more increases despite signs of weaker economic activity, AP reported.
South Korea’s Kospi fell 0.7% to 2,475.35 and Sydney’s S&P ASX-200 fell 0.8% to 7,060.20. New Zealand and Singapore advanced while Indonesia declined. The Shanghai Composite Index rose 0.4% to 3,270.59 while the Nikkei 225 in Tokyo fell 0.4% to 28,805.52, AP reported. The Hang Seng in Hong Kong fell less than 0.1% to 19,770.92.
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