Sensex slides for third day; what's spooking investors on D-Street?

In across the board selling by the investors, the benchmark indices tumbled for a third day while volatility shot up ahead of the US Federal Reserve outcome later today and Thursday's F&O expiry

The benchmark indices came falling like a deck of cards in Wednesday's session, as the ripples of a regulatory crackdown by the Chinese government was felt by markets across the globe. Investors worried whether the selloff in Chinese tech stocks would spread to other segments.

"China is too big now. It can cause flutters in global markets. This space needs to be watched cautiously," warned Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In across the board selling by the investors, the benchmark indices tumbled for a third day while volatility shot up ahead of the US Federal Reserve outcome later today and Thursday's July F&O expiry. Overall, the BSE barometer Sensex gave up the 52,000 mark as it cracked 776 points to day's low of 51,803. NSE's Nifty50 tumbled over 200 points to 15,513.

Index heavyweights HDFC twins, Reliance Industries, ICICI Bank, Axis Bank and Infosys were among the top Sensex drags. Select counters like IndusInd Bank, HUL and Titan held their ground. Investors, meanwhile, turned poorer by nearly Rs 3 trillion.

So, what really drove the markets lower? Here are the key factors

Global mood sours
Asian stocks extended declines as a rout in China and a mixed response to major US technology earnings spurred caution across the globe, including in India. Equities in China and Hong Kong fell further, exacerbating this week’s plunge on a regulatory crackdown by Beijing that’s stirred questions about how far officials will go to curb big companies, a Bloomberg report stated.

Japan’s Topix index fell 1.3 per cent, Australia’s S&P/ASX 200 lost 0.7 per cent, South Korea’s Kospi index fell 0.5 per cent,
Hong Kong’s Hang Seng Index shed 0.7 per cent and China’s Shanghai Composite fell 0.7 per cent. Meanwhile, the embattled Hang Seng Tech Index was last flat, a day after touching its lowest level since the index's creation in July 2020. It is still down about 40 per cent from its February high.

US stock futures, the S&P 500 e-minis, were flat.

Caution ahead of Fed meet
Market participants were wary of placing large bets prior to the key events in the markets such as central bank policy action and F&O expiry.

On the global front, Street will be watching closely for any hints on when the Fed will start reducing its purchases of government bonds and any fresh insight into its views on inflation and economic growth when it announces its outcome later in the evening. Back home, the F&O expiry on Thursday and the RBI policy next week is also luring investors to stay on the sidelines - at least for now.

FIIs on selling spree
The foreign institutional investors have once again turned sellers on Street after hefty buying witnessed in last two months. So far this month, FIIs have offloaded Rs 8,000 crore from Indian equities as markets trade at all-time high levels and valuations remain a concern.

"FPIs have been on the sell-mode in July. Heavy FII selling is seen in the Nifty 15,750- 15,900 range. The weakness in FPI favourites like HDFC twins may be due to FPI selling and portfolio churning. Since FPI selling is getting absorbed without any serious price damage, we can expect selling to continue around Nifty 15900," Kumar said in a recent note.

IMF growth downgrade
The sentiment on Street also took a beating after the International Monetary Fund on Tuesday forecasted India's economy to grow 9.5 per cent in 2021-22 - a cut of three percentage points from its earlier forecast - citing a lack of access to vaccines and renewed waves of Covid-19 cases.