Weakness continues on Sensex, Nifty; 5 factors weighing on indices

The Nifty witnessed a sell-off on October 25 morning, hours ahead of expiry of derivative contracts for October series. The 50-share index fell over 100 points, while the Sensex fell over 400 points intraday.

Factors such as a rout in global markets, reactions to earnings, technical factors, NBFC weakness and volatility around expiry have played on the indices.

Among sectors, there has been a weakness among automobiles, banks, energy, consumption and metals, among others. There has been a sell-off among the midcaps segment as well, the Nifty Midcap is down over 1.5 percent.

Wipro and Asian Paints are the top gainers, while Adani Ports, Bharti Airtel and Indiabulls Housing have lost the most.

Here are the key reasons behind the market’s fall:

Global markets fall

Poor corporate earnings and fall in information technology stocks in the US have dragged equity markets there. The Dow erased all of its gains for 2018 in a matter of few sessions. The index closed 600 points lower, while S&P 500 fell over 3 percent.

In Asia, the market also saw a sharp fall, following weak handover from Wall Street. Shanghai Composite fell over a percent, while Shenzhen Composite fell around 2 percent. The Hang Seng fell 1.8 percent.

NBFC weakness

Shares of non-banking financial companies (NBFCs) have been trading lower. This, especially, has followed after an L&T Finance Holdings stated that its exposure to IL&FS entities are to the tune of Rs 1,800 crore and around Rs 800 crore to Supertech as well. Indiabulls Housing Finance, Dewan Housing Finance, and Repco Home Finance are down 4-6 percent.

Concerns on liquidity have continued among investors on the back of the defaults by IL&FS. Along with it, there are concerns over higher borrowing costs as well.

Expiry

Usually, the market tends to be volatile around expiry of derivative contracts as traders rollover their monthly positions.

October 25, being the last Thursday of the month, investors will be rolling over contracts for October series, which is leading to the negative move on the market.

Anecdotal evidence suggests that the last one hour of the trade becomes very crucial.

Earnings

Investors have been digesting cues from earnings as well. On Wednesday, names such as IndiGo, Jubilant Foodworks, and Bajaj Auto, among others declared mixed set of earnings. While Jubilant posted healthy numbers, IndiGo reported a quarterly net loss. Bajaj Auto, saw 4 percent rise in its net profit for the September quarter.

Mixed earnings trends are leading to more volatility among stocks too. With key earnings such as Yes Bank, Bharti Airtel and Maruti Suzuki lined up, investors are treading with caution on this market.

Technical Factors

Experts suggest 10,100 becomes a key level for the Nifty and a fall below this could lead to weakness as well.

The Nifty on Wednesday made a ‘Hammer’ like pattern on the daily chart which suggests that the market is trying to form a bottom. However, with today’s gap-down opening, weakness is likely to continue.

If we end the day with a bearish candle, the bullish implication of the Hammer pattern will get negated. Hence, on the expiry day, if we close above 10,100, it will act as a crucial support in the November series as well.

“Further strength in Nifty shall be expected only on a close above 10,450 levels which then shall open up a new target towards 10,710. Contrary to this breach 10,100 shall initially lead to the test of 9950,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.