Wednesday, 6 May 2015

Five reasons why the Sensex tanked over 700 points today

Here are five reasons why BSE Sensex dropped over 700 points today

1. Escalating market volatility, anxiety in derivatives market: The sell-off was triggered due to algorithmic trades, as Nifty dished below 200-day moving average (200 DMA). India’s volatility index rose nearly 16% in today’s trade to its highest level since February, indicating more fluctuations ahead. Foreign institutional investors (FIIs) have been unravelling their long positions and are simultaneously generating short positions, amounting to the already built pressure in the market.

2. Growing crude oil prices: India, which imports two-third of its crude oil obligation, is directly knocked by rising crude oil prices. Today, benchmark Brent crude touched $68.55 per barrel, up 1.5% from its previous close. The benchmark had hit a low of $46.59 on 13 January and has escalated 47.48% since then.

3. Frail Asian markets and mounting sovereign bond yields: Asian stocks plunged to two-week low, dragged down by a sell-off in global sovereign bonds, as investors were anxious it might set off profit-booking in other asset classes. Long-term US Treasury yields rose on Tuesday to their highest level this year, with the 30-year US bond yield rising to 2.934%, the highest in five months and above its 200 DMA.

4. Ongoing tax string between foreign investors and Govt: The brawl between income tax authorities and foreign portfolio investors (FPIs) over the conservative levy of minimum alternate tax (MAT) has made foreign investors alert. FIIs have been net sellers of Indian equities in 11 of last 12 trading sessions of April in the cash sector, data from market regulator SEBI showed.

5. Weak private sector data: The HSBC India Composite Purchasing Managers’ Index (PMI) that indicates private sector activity fell to a six-month low of 52.5 in April as demand remained elastic, indicating that expectations from the change of guard at the Centre are waning.

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