Nifty, Sensex drop two per cent as bears take control of D-Street—Key factors behind today's market fall

The Indian market fell nearly two per cent on Friday's intraday trade amid multiple global and domestic factors. Benchmarks Nifty50 declined two per cent to slip below 17,300, while the Sensex dropped over 1000 points to trade below the 58,000-mark.  The 12-share Bank Nifty slipped three per cent or around 1200 points to trade near 39,400.

Following benchmarks, Nifty Midcap and smallcap fell by 1.4% and 1.3% respectively. Sectorally, bank, financial and auto stocks led the drag, while IT index traded flat. However, Pharma and healthcare outperformed the market, gaining almost one per cent each.  

Meanwhile several factors led to this fall. Below are the key factors weighning on the market today.  

FOMC Meeting Impact 

The world markets have been trading jittery after the US Federal Reserve raised the interest rate hike by 75 basis points on Wednesday. The US market fell for the third straight session reacting to the Fed rate hike. The impact was also visible on Indian markets, which fell almost one and half per cent on Friday.  

Inflation and recession fears 

The markets were also reacting to the recession and inflation fears, which was triggered by the third consecutive rate hike of 75 bps by the US Fed since June. The Asian markets too traded with weakness in the early trade as Hang Seng Index and Chinese Shanghai Composite declined between 0.5-1% on Friday.  

FIIs trend reversal 

After ending August on high note, the foreign institutional investors have so far shown lukewarm response to the Indian market in comparison the previous month. Though FIIs net buy in September remains marginally positive, it has drastically come down in the past one week. As on September 22, the market remained net buyers in the cash market with just Rs 453.86 crore.  

"Resumption of FPI buying since July has been supporting the rally in India. Now this is under threat with FPIs turning sellers in 5 out of the last 7 days. FPIs are unlikely to buy consistently when the US 10-year bond yield is above 3.7% and the dollar index is above 111," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

Rising Dollar and weakness in rupee 

The US dollar continues to gain strength against Indian rupee. The INR fell 41 paise to all-time low of 81.20 against US dollar in early trade on Friday.  

"The global risk-off is gaining strength aided by the steadily rising dollar. Dollar is rising against all currencies and this will impact capital flows into emerging markets including India. Resumption of FPI buying since July has been supporting the rally in India," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

On USD-INR outlook, Anand James - Chief Market Strategist at Geojit Financial Services said the gigantic move expected in the last few days unfolded yesterday and far exceeded the 80.3 objective we had lined up. "Ideally, the present move has room till 81.8. Downsidemarker may be placed at 80.7 for now," the expert said.