Market snaps 5-session gain; Sensex, Nifty fall over 1% on weak U.S. data

Snapping five sessions gaining streak, Indian equity benchmarks witnessed sharp selling on Friday, with the Sensex and Nifty falling over 1% from their all-time high levels amid weak cues from global peers. India Volatility Index (India VIX), which calculates stock market volatility in India using the Nifty 50 index, witnessed a sharp spike of 10% to 14.19, reflecting market uncertainty.

The global market sentiment was dented by weak U.S. manufacturing data, which showed that the business activity in the world’s largest economy continued to contract at an accelerating pace in July, with the ISM Manufacturing PMI dropping to 46.8 from 48.5 in June.

In the overnight trade, U.S. markets ended sharply lower, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite declining 1.21%, 1.37% and 2.3%, respectively. Tracking negative cues from Wall Street, Asian stocks were also under stress today, with Japanese Nikkei 225 index plunging 5%, while South Korea’s KOSPI, Hong Kong’s Hang Seng index, and China's Shanghai Composite index falling in the range of 1-3%. The U.S. 10-year bond yield fell sharply by 3.95%, indicating the market’s fear.

"The sudden turn for the worse for the U.S. economy reflected in the ISM Manufacturing index dipping sharply to 46.6 spooked the U.S. and other developed country markets yesterday. This has brought back recession fears in the U.S. The market which has been soaring on the soft landing expectation has turned nervous on the possibility of a U.S. recession and its impact on the market,” says V. K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The BSE Sensex declined as much as 871 points, or 1%, to hit an intraday low of 80,995, while the Nifty50 dropped 287 points, or 1.1%, to slip below 25K mark to 24,724 level.

In a similar trend, BSE midcap and BSE smallcap indices plummeted as much as 1.5% during the trade so far.

On the BSE Sensex pack, 24 out of 30 stocks were trading in red zone. The top laggards on the BSE Sensex were Maruti Suzuki, Tata Motors, JSW Steel, Tata Steel, and M&M, falling in the range of 2-5%.

On the other hand, HDFC Bank, Kotak Mahindra Bank, Asian Paints, Adani Ports, Nestle India, Sun Pharma were among gainers on the Sensex pack, rising between 0.5-2%.

The IT stocks also witnessed selling pressure today, with index heavyweights Tata Consultancy Services (TCS), Infosys, Tech Mahindra, HCL Tech, Wipro falling between 1-2%.  

Reliance Industries (RIL), the country’s most valued stock, also fell nearly 1% during the trade so far.

A sell-off on Wall Street, coupled with concerns over a potential US recession and weak commentary from the top IT companies in the US, led to a cautious approach among investors, says Pravesh Gour, Senior Technical Analyst at Swastika Investmart.

“Technically, Nifty has shown some bounce back from the important level of 24,750. Now 20-DMA of 24600 will be the key support level. 25,000 will act as a key barrier after a gap-down opening,” he says.

Vishnu Kant Upadhyay, AVP, Research and Advisory at Master Capital Services, says domestic equities have been on an extended upward trajectory, which has pushed stocks into overvalued territory, leading to a sharp correction in prices.

“However, we do not anticipate a further acceleration in this decline. The major domestic indices remain well above their key moving averages, maintaining a bullish bias for the short to medium-term. We believe as long as the market is trading above the 21-day EMA, every decline will present investors with an opportunity to accumulate shares at lower levels,” he says. 

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