The selling pressure in the market has exacerbated and the markets are down for the firth straight session. The Sensex tumbled over 1200 points while the Nifty plunges below 23,000.
All major sectors ended in the red. The BSE Smallcap index plunged 3.9%, while the Midcap index slumped 3.5%. Banking giants like HDFC Bank, ICICI Bank, and Kotak Mahindra Bank were among the biggest drags, losing up to 3%.
“Technically, after a quiet opening, the market slipped below 23,500/77600, and following this decline, selling pressure mounted. A bearish candle was also formed on the daily chart, indicating further weakness from the current levels. We believe the current market structure is weak, but a fresh sell-off is possible only if the 20-day SMA (simple moving average) or 23,300/77000 is rejected. Below this level, it could retest the range of 23,220-23,175/76700-76500. On the other hand, 23,500/77600 will be the main resistance zone for the bulls. Above this level, the pullback can extend towards 23,560/77800,” said Shrikant Chouhan, Head Equity Research, Kotak Securities.
Here are the key reasons behind the market downturn:
Global pressure: US tariff hike on steel and aluminum
Adding to the turmoil, US President Donald Trump escalated trade tensions by imposing a flat 25% tariff on steel and aluminum imports. Unlike earlier, there will be no country-specific exemptions, affecting imports from Canada, Brazil, Mexico, and South Korea. The decision, aimed at protecting American industries, has triggered concerns about a potential global trade war, which could further impact emerging markets like India.
“Trump’s latest decision to impose 25% tariffs on steel and aluminium will impact countries like Mexico, Brazil, South Korea and Vietnam more. Metal prices will remain soft for long,” added Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
FPI selling hits markets hard
Foreign investors have been aggressively pulling money out of Indian stocks since October last year, majorily driven by rising US bond yields and a stronger dollar. So far in February alone, FIIs have offloaded Rs 12,643 crore in the cash segment. Since October, total outflows have crossed Rs 2.75 lakh crore.
“The relentless selling by FIIs in largecaps has made their valuations fair while the valuations of mid and smallcaps continue to be excessive. FIIs will certainly turn buyers in India; but that will happen only when the dollar index turns weak. We know that it will happen, but don’t know when. What investors have to do now is to buy quality largecaps in banking, IT, autos, pharma and capital goods and wait patiently. When FIIs turn buyers in India, which is inevitable, they will be buying the largecaps which they are selling now. For patient investors, this is a good opportunity,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
US bond yields & strong dollar add to pressure
The sharp rise in US bond yields has further dented market sentiment. The US 10 year Treasury yield now stands at 4.495%, making American assets more attractive to global investors.
Valuation concerns in small and midcaps
Despite the significant correction in small and midcap stocks, analysts believe that these stocks are still fairly stretched, in terms of valuation. As a result, the BSE Smallcap and Midcap indices have seen sharp 3% plus corrections each. This is also exerting further pressure on indices and investor sentiment.