Five reasons why Sensex tanked 723 points
Here are five reasons why BSE's benchmark Sensex shed over 700 points in intra-day trade on Wednesday
1. Increasing market volatility, nervousness in derivatives market: The sell-off was triggered by a number of fundamental and technical factors. Some dealers say that sell signals from algorithmic trades were also triggered as the Nifty dipped below its 200-day moving average. India’s volatility index VIX rose nearly 16% in Wednesday’s trade to its highest level since February, signalling more swings ahead. Foreign institutional investors (FIIs) have been unwinding their long positions and are simultaneously creating short positions, adding to the pressure in the market.
2. Weak Asian markets and rising sovereign bond yields: Asian stocks tumbled to two-week lows, pulled down by a sell-off in global sovereign bonds, as investors were concerned it might trigger profit-taking 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-day moving average.
3. Rising crude oil prices: India, which imports two-third of its crude oil requirement, is directly hit by rising crude oil prices. On Wednesday, 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 gained 47.48% since then.
4. Ongoing tax row between foreign investors and government: The tussle between income tax authorities and foreign portfolio investors over the retrospective levy of minimum alternate tax (MAT) has made foreign investors cautious. FIIs have been net sellers of Indian equities in 11 of last 12 sessions of April in the cash segment, data from market regulator Securities and Exchange Board of India showed.
5. Weak private sector data: The HSBC India Composite Purchasing Managers’ Index (PMI) that gauges private sector activity fell to a six-month low of 52.5 in April as demand remained soft, indicating that expectations from the change of guard at the Centre are waning.
Reuters contributed to this story.
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