Sensex breaks below 38,000, Nifty below 11,500; 5 factors weighing on market

Equity Service| Weak global cues, trade war fears and rupee’s sharp fall, among others, are likely dragging the market lower.

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The S&P BSE Sensex slipped below its crucial support placed at 38,000 while the Nifty plunged below 11,500 in morning trade on Monday tracking muted trend seen in other Asian markets.

The Sensex fell over 350 points while the Nifty saw a cut of over 100 points in the first 30-minutes of trade. The market breadth is negative as 607 shares advanced, against a decline of 965 shares, while 102 shares are unchanged.

Wipro, Sun Pharma, and HCL Technologies are the top gainers, while Axis Bank, State Bank of India, Titan and Indiabulls Housing have lost the most.

Here is a list of top 5 factors which could be weighing on markets:

Weak Global cues:

A flat close on Wall Street and a muted trend seen in other Asian markets hinted at a weak opening for Indian markets. Wall Street ended mixed amid news of trade wars.

The trend remains weak in Asian markets as well. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1 percent, snapping three straight sessions of gains, said a Reuters report. “Shanghai blue chips fell 0.8 percent, while the Hang Seng shed 0.9 percent,” it said.

Trade war Fears:

Media reports suggest that the U.S. President Donald Trump is likely to announce new tariffs on about $200 billion on Chinese imports as early as Monday, a senior administration official told Reuters.

The tariff level will probably be about 10 percent, the Wall Street Journal reported, below the 25 percent the administration had said it was considering, it said.

In other news, China replied by saying that the government may decline to participate in proposed trade talks with the United States later this month if the Trump administration moves forward with additional tariffs on imported Chinese goods, the Wall Street Journal reported on Sunday, citing Chinese officials.

Rupee extends losses:

The Indian rupee extended its losses to 72.64 per dollar, down 79 paise, after it opened lower by 67 paise at 72.52 per dollar versus Friday’s close 71.85.

Navneet Damani of Motilal Oswal Financial Services said, “The recent high is likely to pose short-term resistance to the pair and consolidation within support at Rs 70.80-71.30 and resistance at Rs 72.50-72.90 zone could be expected for the next 1-2 weeks.”

Govt measures inadequate:

Over the weekend, the government announced a slew of measure to bring down current account deficit (CAD) and cap losses in the rupee. However, most experts feel that the measure outlined by the government might not be adequate.

The government on Friday announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investors and curbs on non-essential imports to contain the widening current account deficit (CAD).

“We view the government’s guarded response as appropriate because India’s macro fundamentals are in a much better shape today than in 2013 – higher growth, stable inflation, and fiscal commitment − and do not necessitate a knee-jerk reaction. However, given the build-up of expectations into the weekend meeting, the policy response will likely disappoint market expectations,” Nomura said in a report.

“In our view, the announcements may fall short of bringing in the USD8bn-10bn estimated by the government because most capital inflows (especially by FPIs) are driven by global push factors rather than domestic pull factors,” it said.

The global brokerage firm further added that measures on curbing imports could work, albeit with a lag. As such, continued global trade tensions may end up offsetting the domestic announcements in the near term.

Technical Factors:

The Nifty broke below its crucial support placed at 11500 levels and a close below 11,450 on Monday could out further pressure on the bulls.

The Nifty formed a bullish candle on the daily scale on Friday while a Hammer candle for the week ended September 14 which suggests that decline is being bought in the market.

In the last two weeks pullback is being sold so a follow-up buying interest is more important to get a short-term stability, suggest experts.

“The Nifty has to continue to hold above 11,450 zones to extend its gains towards 11,600 and then towards 11,666 while on the downside support are seen at 11,450 followed by 11,333 zones,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Bank Nifty negated its negative lower high and lower low formation and formed a Bullish Candle on the daily scale while a Hammer candle on a weekly scale. Now, it has to hold above 27165 zones to extend its gains towards 27440-27500 zones while on the downside support is seen at 26750-26650 zones,” he said.

On the options front, maximum Put OI is placed at 11400 followed by 11000 strikes while maximum Call OI has placed at 11800 then 11600 strikes.

Fresh Put writing was seen at 11500 followed by 11400 strikes whereas Call unwinding was seen at all immediate strike price. Option band signifies an immediate trading range in between 11400 to 11600 zones.

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