Why are markets falling today?


Dalal Street investors were looking for cover on Wednesday, September 20, as selling in HDFC Bank and Reliance Industries’ shares worsened the pain imported from global equity markets.


The benchmark S&P BSE Sensex plunged 678 points intraday to break below the 67,000-mark. The Nifty50, on the other hand, broke the 20,000-mark to hit a low of 19,938 level as it fell 195 points.


That apart, it was a sea of red across sectoral indices with the Nifty Bank, Financial Services, and Private Bank indices down over 1 per cent. 


Analysts had been warning of potential risks building up for the markets in the near-term including boiling crude oil prices, surge in US Treasury yields, and selling by foreign portfolio investors (FPIs).


“Caution is advised in the Indian stock market, especially in the small and microcap segments, as there are potential sources of intermittent volatility, such as the US Federal Reserve’s actions, rising commodity prices (especially crude oil), uncertain monsoon impact on crop production, upcoming state elections, and soft rural consumer demand,” said Milind Muchhala, executive director at Julius Baer India.


It’s important to remain slightly conservative, he suggested, as corrections can be swift. 

“Favoring large cap and larger mid-cap names is suggested in this market, while profit-taking in stocks (especially momentum ones) may be prudent,” he added.


Analysts, however, advise investors to use the interim corrections to increase equity exposure for the long-term as the overall positive outlook for Indian markets remains intact, driven by economic growth, strong corporate earnings, robust expected inflows, and valuations in line with historical averages.


Here’s what driving the market down:


HDFC Bank: Shares of HDFC Bank tumbled 4 per cent to Rs 1,563 apiece after brokerages cautioned that the stock may continue to underperform the markets in the near-term. 


Global brokerage Nomura, for instance, has downgraded the stock to ‘Neutral’ from ‘Buy’ after the management’s disclosed pro-forma financials of the merged entity highlighted higher than expected hit on net worth, return ratios, and margins. READ MORE

Reliance Industries: Shares of India’s biggest company by market capitalisation, too, declined by 3 per cent on the exchanges after around 0.3 per cent of the company, or nearly 20 million shares worth nearly Rs 5,000 crore, exchanged hands in the block deal. 


Till 11:40 AM, 25.65 million shares had changed hands. The names of the buyers and sellers was not known immediately. READ MORE

Nervousness ahead of US Fed outcome: Asia-Pacific markets mostly fell on Wednesday as investors stayed on the sidelines ahead of the US Fed’s interest rate decision later tonight.


Overnight, US indices fell up to 0.3 per cent, while major indices across Asia were quoting lower in the range of 0.1 per cent to 0.7 per cent.


The Federal Reserve is widely expected to hold rates steady, but the central bank will give an update on its economic outlook with the summary of economic projections.


Meanwhile, China left its one-year and five-year loan prime rates unchanged on Wednesday, at 3.45 per cent and 4.2 per cent, respectively, in-line with expectations, as fresh signs of economic stabilisation and a weakening yuan reduced the need for immediate monetary easing.


Oil prices: The Brent crude oil price, which topped the $96 per barrel-mark overnight, was hovering around $93 per barrel on Wednesday. 


Analysts at Jefferies believe fiscal pressures for the Indian economy are gradually rising as oil prices, that are close to the $100 a barrel (Brent) mark, may continue to climb ahead of a busy election calendar. READ MORE

US Treasury yields: US yields hit a 16-year high ahead of the conclusion of the Federal Reserve’s policy meeting on Wednesday. The benchmark 10-year Treasury yield reached a session high of 4.371 per cent overnight on Tuesday, its highest level since early November 2007. 


The five-year Treasury yield also reached a 16-year high of 4.524 per cent, while the yield on the two-year note hit a two-month high of 5.114 per cent.


Technical outlook: The Nifty and Sensex indices have immediate support levels at 19,900 and 66,900, respectively. 


If these levels are breached, we may witness additional profit booking, potentially leading towards 19,640 for Nifty, and 66,000 for Sensex, said Parth Nyati, founder, Tradingo.


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