Sensex tanks 267 points; Nifty hits one-month low; 5 factors that spooked investors

The domestic equity market fell for a fourth straight session on Thursday with Nifty testing 9,800 levels and Sensex ending below 31,600 mark.

BSE Sensex lost 266 points or 0.81 per cent to end at 31,531.33, recovering around 150 points from 31,500 level just before closing. Nifty50 ended the session at 9,820.25, down 0.89 per cent or 87 points.

The 30-share pack opened at 31,750.73 and touched an intraday high and low of 31,756.27 and 31,422.80 respectively. Shares of
31,756.27 and 31,422.80 respectively. Shares of Tata MotorsBSE -8.60 % (down 8.60 per cent), Dr Reddy’s Laboratories (down 4.77 per cent), Sun PharmaBSE -3.08 % (down 3.08 per cent) were the major drags on the index. The advanced decline ratio stood at 1:9, signalling strong bearish trend.
BSE Midcap index plunged to 14,755.85, down 2.64 per cent or 400 points, hitting its lowest level since demonetisation announcement. Shares of Jindal SteelBSE -9.38 %, Adani PowerBSE -8.87 %, JSW EnergyBSE -8.07 %, Nalco, Reliance Infra, Indian Bank fell over 7 per cent with 26 out of 30 stocks ending in red.

BSE Smallcap saw its biggest fall in 11 months and lost 452 points or 2.90 per cent to 15,181.64 with 20 out of 30 stocks ending the day in red. Shares of Shares of CignitiBSE BSE -20.00 %, Natco PharmaBSE -16.13 %, MEP, Sanghvi MoversBSE -14.98 % and Rain cracked over 14 per cent dragging the index down.

Barring Nifty IT (up 0.46 per cent), all other sectoral indices ended the session in red. Nifty Realty bled the most, losing over 5 per cent to 257.30.
So what caused the market to fall? Going by the buzz on Dalal Street, multiple triggers drove the market down on Thursday.

Weak global markets: Markets from Japan to the UK were in the red on Thursday amid geopolitical concerns over North Korea’s nuke threat. Investors flocked to gold that hit a two-month high and other safe havens, such as Japanese yen and the Swiss franc. Hang Seng was the worst hit in Asian markets, having ended the session 1.34 per cent lower. In Europe, UK’s FTSE100 was worst hit with a 1.10 per cent fall. Euro Stoxx 50 fell 0.6 per cent to 3,448.Poor advance-decline ratio: The advance-decline ratio was 1:9 on Thursday, even though the broader market indices recovered about 1 per cent from day’s low. A weak advance-decline ratio signals that the euphoria is over.

For some time, it was being observed that even as the benchmark Sensex and Nifty were scaling new heights, the broader market that includes midcap and smallcap stocks were not participating in the rally amid concerns over valuations.
Of the 2,683 companies that traded on Thursday, only 390 ended higher, suggesting a broader selloff. As selling extended to the fourth session in a row, the euphoria got over and the bulls were on the back foot.

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 do not expect their stock to sustain at prevailing valuations. The Sensex is trading at price-to-earnings ratio of 24 compared with a five-year average PE of 19.23 and 10-year PE average of 19.33.

“A 500-point froth that we were seeing on the Nifty50 is getting corrected,” Sanjiv Bhasin, EVP-Markets & Corp Affairs at India InfolineBSE -5.59 % Sebi order: Sentiment has been weak in the cash market ever since Sebi barred 331 stocks from trading, suspecting most of the firms being ‘shell’. There has been repors suggesting that the ban has triggered an estimated margin shortfall of around Rs 800-1,000 crore.

“When the fall has to happen, you have to find a reason for it. The ongoing fall need not be attributable to Sebi ruling, but that is as good a reason, as any,” said Anand Tandon, Independent Analyst. Slowdown in FPI inflows: Inflows from foreign portfolio investors into India have slowed of late as rich valuations and delay in corporate earnings recovery have reduced their appetite for domestic stocks. After pouring over Rs 50,000 crore in equity markets during February-July, foreign portfolio investors have sold shares worth Rs 2,549 crore (net) in August so far, according to data available with depository NSDL.