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Sensex tanks over 300 points; Nifty below 9,750: 5 factors that spooked Street bulls

11 August, 2017 4:02 AM
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NEW DELHI: Benchmark indices took a dive on Friday morning following a sharp correction in US stocks overnight on escalating geopolitical tensions. A ripple effect was seen across Asian markets which declined up to 1.2 per cent. India was no exception.

The BSE Sensex plunged over 330 points to hit a low of 31,531.30, before recovering a bit. At 9.20 am, the index was trading at 31,244, down 286 points, or 0.91 per cent. The NSE’s Nifty50 was trading 94 points or 0.96 per cent lower at 9,726.10. The index hit a low of 9,704.35 in early trade.

Trump warning on North Korea nuke threat: It was about to happen and it happened overnight. Amid escalating tensions with North Korea, US President Donald Trump said his earlier warnings to North Korea may not have been tough enough. Is it? So the President gave a fresh warning. He said, “the nuclear-armed nation should be "very, very nervous" if it even thinks about attacking the United States or its allies.” That’s very serious!

Asian selloff: The overnight fall in US stocks was too much for Asian stocks. MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.2 per cent in its third session of declines, heading for a 2.1 per cent drop for the week. Australian shares were down 1.2 per cent, set for a weekly loss of 0.5 per cent. Japanese investors were all happy, as the market were closed for a public holiday.

Weakness in technical charts: Analysts noted that the index had been respecting its 50-day exponential moving average (EMA) for last seven months and was a critical short-term support for the index.

Most analysts believed that any intraday bounce towards 9,850-9900 was expected to get sold into. But that didn’t happen. Instead, the Nifty tested 9,700 on Friday morning.

“Traders are advised to remain light and avoid taking undue risks as individual stocks may continue correcting in next few days,” Angel Broking said in a note.

Valuation concern: Time and again, analysts have warned of rich valuations in the market. Selling can come into a richly valued market for any reason, as investors tend to find excuse to book profits, when they don’t see their stock sustaining their levels at prevailing valuations. Sensex is trading at price-to-earnings ratio of 24 compared with five year P/E average of 19.23 and 10-year PE average of 19.33.


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