Nifty ends below Mount 11K @ 5-month low; top 5 factors that weighed on markets

The S&P BSE Sensex plunged more than 400 points, while Nifty50 broke below 11,000-level on August 1, hitting a new five-month low.

In terms of sectors, the S&P BSE Metal index was among the top losers followed by the S&P BSE Capital Goods index, S&P BSE Telecom, S&P BSE BANKEX and the S&P BSE Finance index.

Bigger carnage was seen in the broader market, as close to 600 BSE stocks hitting 52-week low. Eicher Motors, Blue Dart, Exide Industries, VST Tillers, CARE Ratings, Motilal Oswal, Escorts, Aarti Industries, IFB Agro, were among the stocks that took a beating.

US Federal Reserve, as expected, slashed rates by 25 bps for the first time in a decade but dashed hopes of a repeat in the near future. Market participants were looking for a more dovish commentary from the central bank.

US markets ended lower and some bit of rub-off effect was seen in Asian markets, which fell to a six-week low while Indian markets dropped to a fresh five-month low.

The Federal Reserve cut rates but chairman Jerome Powell said the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness, a Reuters report said.

Also, the US and China on Wednesday ended a brief round of trade talks without much making headway in ending a year-long tariff war, the report added.

“We suspect that the Fed Chair was trying to signal that at the current juncture he does not anticipate the current easing cycle to be aggressive and steep. Instead, the rate cuts that are being delivered are ‘insurance’ to protect the economy from downside risks that have increased from the international front,” ICICI Bank Global Market in its note on treasuries said.

One of the main reasons for the massive fall is persistent selling by foreign investors, who have pulled out more than Rs 16,000 crore from the cash segment in July, while domestic institutional investors poured in more than Rs 20,000 crore during the same period.

Growth of eight core industries dropped to 0.2 percent in June, mainly due to a contraction in oil-related sectors as well as in cement production, according to official data.

Growth in eight core industries, comprising 40.27 percent weight of the items included in the index of industrial production (IIP), was at a near four-year low. The eight-core sector grew at lowest 0.2 percent, lower than the 7.1 percent in June 2018 and the 4.3 percent in May 2019.

“This was the lowest year on year growth since Dec’15. For May’19, the core sector growth was also revised lower from 5.1% to 4.3%,” CARE Ratings said in a report.

“The drag in the growth has been led by a decline in production in refineries and cement along with high base effect last year,” it said.

June quarter corporate earnings have, so far, been a mixed bag. Fewer surprises and bigger disappointments have taken a toll on the markets already running at lofty valuations.

“Earnings have been a mixed bag, but more importantly the commentary post earnings has been not encouraging, which is a cause of concern. The hits are quite clear like Asian Paints, ICICI Bank, Dabur, Infosys, HUL and Reliance Industries,” Naveen Kulkarni, Head of Research, Reliance Securities, told Moneycontrol.

“However, there have been quite a few misses like Axis bank, MMFS and auto stocks. The misses have been more than the hits at this juncture.”

The Nifty50 slipped below its crucial psychological levels of 11,000. It has already broken below its 200-day moving average (DMA) placed at 11,140 on Wednesday. As long as the index trades below this level, chances of further selling increases.

This moving average acted as a crucial support for the index since February. The last time when the index came closer to 200-DMA was in May before bouncing back to hit a record high of 12,103 on June 3.

“The Nifty is still trading below its 200-day moving average. Traders are advised to refrain from creating long positions until this index consolidates around these levels for a couple of days and shows some signs of strength on momentum oscillators,” Mazhar Mohammad, Chief Strategist, Technical Research and Trading Advisory,, told Moneycontrol.

“…if this index trades below its psychological support of 11000 levels for at least 30 minutes then it can come under further selling pressure, which shall provide intraday trading opportunity on the short side for modest gains of around 50–100 points,” he said.