5 reasons why the Sensex slipped 699 points today

Most Asian markets were rattled by a rise in US bond yields

Markets succumbed to selling pressure on Friday, with the S&P BSE Sensex tanking over 700 points in intra-day deals to hit a low of 26,777 levels. It, however, ended the day 2.5%, or nearly 699 points lower at 26,819 levels. On the other hand, the Nifty50 index lost 2.7%, or 230 points, to end at 8,296 levels – the lowest closing level in four months.

“As euphoria surrounding US election settled, the prospects of outflows from EMs to US, anticipating reform measures from Trump, and rise in US treasury yields has resulted in sharp sell-off in Asian markets. The anticipated rise in spending in US, has also upped the ante for FOMC rate hike in December,” said Anand James, chief market strategist at Geojit BNP Paribas Financial Services.

“Profit booking ahead of long weekend also exaggerated the falls in Indian markets. Banks resisted for most part of the day, before giving in after SBI announced Q2 results,” he adds.

ON THE CHARTS

A hammer candle stick pattern in the weekly chart of the Nifty is what make thing interesting, technical analysts say. 

"This could be a pivotal point for the market and indicating possibility of a reversal cannot be ruled out after couple of weeks correction. For that, we need to see bulls to prove their strength with sustain buying, which could lift the market above the 8600 levels on a sustainable basis. If that happens, we expect market to find momentum and break above 8800 levels. In the short-term, we expect the markets (Nifty) to stay in a range of 8300-8600 in the short-term," said Rohit Gadia, Founder & CEO, CapitalVia Global Research in an emailed note.

Here are five reasons why the Sensex tanked 699 points today:

Donald Trump presidency to stoke inflation: US bond yields spiked and most Asian markets edged lower amid fears that policies of President-elect Donald Trump, if implemented, will stoke inflation in the US, trigger a hike in rates and lead to a flight of capital from the emerging markets (EMs). US bond markets have also seen dramatic moves since Trump's victory, with the 10-year US Treasury yield hitting their highest levels in 10 months. The yield on the 10-year note gained 4.9 basis points (bps) to 2.118%. The four-day advance was the 10-year’s largest since June 24, 2013, reports suggest.

Among key Asian markets, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4% on Friday. Straits Times, Hang Seng, Taiwan Weighted, KOSPI and Jakarta Composite skidded 0.7% - 4.2%.

Demonetisation move dents sentiment: Sentiment was also impacted given the demonetisation of Rs 500 and Rs 1000 notes by the government earlier this week. Stocks from the real estate, gems & jewellery and consumption related segments continued to weigh on the overall market sentiment.

Among stocks, while Delta Corp lost over 11% in trade, DLF, Phoenix Industries, Godrej Properties, Oberoi Realty, Sobha Developers and Unitech slipped 2.7% - 6.3%. Nifty Realty index cracked 4.6%. Gems & jewellery related stocks such as Titan Company, Gitanjali Gems, TBZ, PC Jeweller, Tara Jewels and Rajesh Exports also lost heavily, slipping up to 7% on Friday.

 

Given this backdrop, A K Prabhakar, head of research at IDBI Capital feels there could be more pain in store for the real estate and jewellery sectors going ahead. He suggests investors stay away from these two sectors for now. 

State Bank of India (SBI) results disappoint: Second quarter results of SBI declared post noon triggered a sell-off in equities on Friday. The state-owned bank reported 34.57% fall in its net profit to Rs 2,538 crore for the quarter ended September 2016 as provisions for non-performing loans rose. SBI had posted a net profit of Rs 3,879 crore in July-September 2015. Sequentially, however, the net profit registered a marginal increase from Rs 2,520 crore in Q1FY17.

"While advances growth has been disappointing during the quarter, the liquidity inflow in the form of huge deposits in the near term due to demonisation can allow the bank to expand its loan book in the near-term. Further, the excess liquidity is likely to result in lower deposit in the near-term, which if passed on to consumers, can result in higher credit growth. We have an ACCUMULATE rating on the stock," said Siddharth Purohit, senior equity research analyst for banking sector at Angel Broking.

Possible delay in GST implementation: On Friday, Finance Minister Arun Jaitley hinted at a possible delay in implementation of the Goods and Services Tax (GST) Bill that added to the overall weak sentiment. The government plans to implement the GST by April 01, 2017. A deadlock over dual control on assesses under the proposed regime has put a spanner in the works. The government and states need to evolve a consensus on model GST Bill and then pass it in Parliament, and the respective state Assemblies, in the winter session.

Profit booking: Given the uncertainty, investors also resorted to profit booking ahead of the long weekend. Markets will remain closed on Monday, November 14 on account of Guru Nanak Jayanti.