4 reasons why the Sensex sank nearly 800 pts on Friday August 2

The NSE Nifty shed 1 per cent and tested a low of 24,751 amid the global market sell-off on Friday; MidCap and SmallCap indices declined more than 1 per cent each.

Equity market in India started Friday's trading session on a dismal note tracking steep losses in global peers as fears of a possible slowdown in the world's biggest economy resurfaced.

The BSE Sensex opened with a negative gap of 709 points at 81,159, and was quoting around 81,283 as of 09:25 AM.

Its counterpart on the NSE, the Nifty 50 index, which had topped the 25,000-mark for the first-ever time on Thursday, cracked more than 1 per cent or 260 points to a low of 24,751.

Among the Sensex 30 stocks - Tata Motors and Maruti were the major losers - down up to 4 per cent each. Tata Steel shed 3 per cent.

 

Larsen & Toubro, Tech Mahindra, Adani Ports, NTPC, JSW Steel, ICICI Bank, UltraTech Cement and SBI were the other major laggards this morning. 

In the broader market, the BSE MidCap index plunged 1.6 per cent to 47,500, and the SmallCap shed 1.4 per cent at 54,175.

The overall breadth was extremely poor in early deals on Friday - with nearly 3 stocks declining as against every advancing shares on the BSE.

Global market sell-off

Global mood turned sour on Friday, after the US market plunged sharply in overnight trades on tepid economic data. The US weekly jobless claims rose and manufacturing growth contracted, more-than-expected, thus fuelling concerns regarding the strength of the economic recovery.

Initial jobless claims rose the most since August 2023 to 249,000 for the week ended July 27. The print came in above the initial consensus estimate of 236,000.

The ISM manufacturing index, a barometer of factory activity in the US, also came worse-than-expected at 46.8 per cent, signaling economic contraction. The manufacturing growth was forecast to be 48.2 per cent.

These data points stoked fears over a possible recession and apprehensions that the Federal Reserve could be too late in cutting interest rates. The US Fed had left key rates unchanged in the July meeting, and hinted of a possible rate cut in the September meeting.

The sudden turn for the worse for the US economy has brought back recession fears in the US. The market which has been soaring on the soft landing expectation has turned nervous on the possibility of a US recession and its impact on the market. The sharp dip in the US 10-year bond yield to 3.95 per cent indicates the market fear, said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services in a note.

Consequently, the Dow Jones Industrial Average dropped 1.2 per cent on the Wall Street, while the S&P 500 shed 1.4 per cent and the tech heavy Nasdaq Composite slipped 2.3 per cent.

Asia-Pacific markets, too, saw a bloodbath this morning with Japan's Nikkei crashing 5 per cent - its steepest single-day fall in two years. Apart from the global worries, fears of possible more rate hikes weighed on the Japanese equity market. The Bank of Japan (BoJ) hikes interest rates by 15 basis points to 0.25 per cent - its second hike in the last 17 years, and signaled further monetary tightening going ahead.

Japan's market has turned negative after a 5-year long bull-run after BoJ rate hike; hence, one needs to be cautious on the global front, said Kranthi Bathini, Director-Equity WealthMills Securities. 

Among other key markets in Asia - Hong Kong's Hang Seng tumbled nearly 2 per cent, while China's Shanghai Composite index was down 0.5 per cent. Kospi and Taiwan plunged over 3 per cent each, and Straits Times declined 1 per cent.

Profit-taking as Sensex, Nifty trade at record highs

The BSE Sensex had rallied over 1,800 points in the last six trading sessions, and breached the 82,000-mark for the first-ever time on Thursday. Similarly, the Nifty had conquered the 25,000 summit yesterday, and had been notching record high close for the three straight days.

The recent rally in India has been sustained more by money flows into the market than by fundamentals. Without fundamental support the rally cannot sustain. It remains to be seen whether the buy on dips strategy will work this time too. Since valuations are high some profit booking, particularly in mid and small caps, can be considered, Dr. V K Vijayakumar stated.

Amid the current bull run in the Indian stock markets, benchmark indices have rebounded smartly time and again after sudden dips.

In the last 18 months, the market has dipped, investors who bought shares in the dip have benefitted. Hence, one should look for buying opportunities in such phases, Kranthi added.

Technical setup for the Nifty 50 index

Repeated attacks on 24,970 following a gapped up opening on Thursday hints at distribution. Hence, if slippages fail to be arrested within 24,850 on the Nifty, an extended down move aiming 24,750 and 24,600 as intermediate supports may be planned for. Alternatively, a pull back above 24850 could put Nifty back on to the 25192-25800 trajectory again, said Anand James, Chief Market Strategist, Geojit Financial Services in a note. 

Meanwhile, Osho Krishan, Senior Analyst, Technical & Derivatives at Angel One flags that despite the Nifty heading for new highs, the market breadth remains restrained, with limited support from the bulls indicating a sign of timidity.

From a technical standpoint, Nifty refrained from showcasing an authoritative move and was crippled due to broad-based profit booking. As far as levels are concerned, 24,800 remains the crucial support zone with anticipation of buying emergence, followed by the sacrosanct support of 24,600-24,500 zone, said Osho in a note.

Hightened geo-political worries

The killing of Hamas leader Ismail Haniyeh in Tehran on Wednesday has raised fears of escalation of conflict between Iran and Israel.

Although Israel so far has not directly commented on the attack, its Prime Minister Benjamin Netanyahu said his country had delivered 'crushing blows' to its enemies in recent days, including the killing of a senior Hezbollah commander in Lebanon hours before the Tehran strike.

In return, Iran has threatened 'harsh punishment' for Israel, which it says was responsible for the assassination of Hamas leader.