Indian equities saw a sharp sell-off on Monday, with benchmark indices tumbling nearly 1.5 per cent amid escalating geopolitical tensions in West Asia, fear of funds moving to China and profit-booking after recent highs.

Mixed economic signals from the US added to the uncertainty, as recent data showed a decline in the Federal Reserve’s preferred inflation gauge. Investors remained cautious ahead of Fed Chair Jerome Powell’s speech, as traders sought insights into future monetary policy amid weakening economic data.

Crude oil prices rose over a potential conflict involving Iran, a key oil producer and OPEC member, raising fears of supply shortages.

The Sensex slid 1,272 points or 1.49 per cent to close at 84,299 on Monday, while the Nifty fell 1.41 per cent to 25,810 to end near the day’s low. The decline marked the worst day for both indices in nearly two months. Cash market volumes on the NSE fell 32 per cent compared to the previous session.

The laggards

Top Nifty losers were Hero Motocorp, Axis Bank, Trent, Reliance Industries, and BEL, all of which lost over 3 per cent each.. Most sectors closed in the red, with the Nifty Auto index the chief laggard, while media and metal sectors bucked the trend.

For the month, Nifty gained nearly 2 per cent amid a rally in global markets after the US Fed cut interest rates by 50 basis points.

“The sharp decline was primarily driven by profit booking after recent highs and heightened geopolitical tensions that have unsettled investor sentiment. The biggest drag on the index was Reliance Industries, which fell by 3 per cent, significantly contributing to the overall market decline,” said Vikram Kasat, Head-Advisory, PL Capital.

Global markets

Asian markets had a wild start to the week, with Tokyo’s Nikkei 225 index sinking nearly 5 per cent while Chinese markets soared on news of fresh stimulus for the faltering economy. European stock markets retreated as investors digested a series of local economic releases as well as the differing performances of the major Asian indices.

Markets will now look for the Q2 result season to provide direction along with global cues and may consolidate after witnessing one side moves in the last few weeks.

“Despite the downturn, sectors like consumer durables and automobiles may see increased demand during the upcoming festive season, although rising inflation could temper growth. Attention will also be on key economic data releases in the coming weeks, including infrastructure output, current account balance, manufacturing PMI, WPI inflation. Additionally, upcoming RBI policy decisions could significantly influence market direction,” said Kasat.

According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, a long bear candle was formed on the daily chart with gap down opening, which indicated a short term top reversal action for the Nifty that could lead to some more weakness in the coming sessions.

Nifty may find support at 25,500-25,400, with immediate resistance at 26,000 levels.

Rupee depreciates

The rupee depreciated Monday due to dollar outflows in the wake of FPI selling in the equity market. The Indian unit closed at 83.7925 per cent Dollar against the previous close of 83.70.

With China announcing monetary and fiscal stimulus measures to support its economy, foreign investors are taking bets on assets in that country, pressuring the Dollar and the Indian unti as well, said market experts.

“Over the past week, the Rupee, after experiencing a decent appreciation, has begun drifting back toward its typical range. This shift is driven by month-end dollar demand from importers, coupled with the RBI’s active management of the currency, as it appears the central bank is intervening on both sides of the Rupee’s movement,” said Amit Pabari, Managing Director, CR Forex Advisors.

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