Stock Market correction: Nifty slips below 17,000, Sensex declines 2000 points—5 factors spooking the market in worst fall since April last year

Domestic equity markets have continued losing streak tracking global cues amid multiple factors.  Domestic equity benchmarks Nifty50 and the S&P BSE Sensex have both slipped over 3 in the afternoon trade. At 11.50 am, the broader Nifty declined as much as 3.39% or nearly 600 points as the Nifty index breifly slipped below 17,000 to 16,997.85 in the biggest fall since April 2021. Similarly, 30-share Sensex tanked 2000 points to decline briefly below 57,000 to 56,984.01. Metal, IT and Pharma led the drag as all broader market and sectoral indices were sitting in the red in late morning trade.  Analyst dubbed FIIs relentless selling and FOMC meet as the primary triggers for the today's market fall. Below are the factors that are triggering the crash on Monday.

FOMC Metting and Russia-Ukraine:  

The markets reacted sharply to the U.S. central bank's Federal Open Market Committee (FOMC) meeting, which is scheduled to meet on January 25-26, in want of clues on its interest rate hikes. Besides, concerns over inflation and Russia-Ukraine discord have also kept the markets on tenterhook. 

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Global markets 

Major Asian markets were trading in the negative ahead of the FOMC meeting, as Hang Seng index traded lower by 0.97%, Shanghai Composite traded flat with negative bias, while SGX Nifty Futures corrected massively by 294.50 points or lower by 1.67% to 17,342.50, as reflected in the headline indices. Earlier on Friday, all top Wall Street indices were in the red. Dow Jones corrected 1.30%, Nasdaq Composite tanked 2.72%, S&P500 slumped 1.89% and Russell 200 ended lower by whooping 1.78% on Friday's closing. 

"The trend in global stock markets has turned distinctly bearish. Last week S&P 500 and Nasdaq closed 8% and 15% below their all-time highs. The sell-off in tech stocks has been brutal last week. European stocks too turned bearish," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

IT and new-edge companies' shares fall 

As many as shares of five new-edge companies tanked to new 52-week low, correcting as much as up to 20 per cent on a single day, tracking losses in IT shares. The decline in IT shares have triggered massive fall in share price of new-edge companies. Shares such as Zomato, Paytm, Car Trade, Fino Payments Bank and Nykaa have corrected up to 20% in Monday's intraday trade on the BSE.  Zomato Shares have alone corrected 40% in the last five trading sessions. Shares of all of these new companies traded n new 52-week low. It is expected that these companies can turn out to be reverse compounders amid brutal sell off. 

FIIs selling pressure 

FIIs continued to be net sellers in January FIIs net sold shares worth Rs 3,148.58 crore on Friday on January 21. Foreign institutional investors (FIIs) are likely to continue selling, according to provisional data available on the NSE. In the month of January so far, FIIs remained net sellers to the tune of Rs 15,563.72 crore in the Indian markets.  

Covid cases remain on higher side 

Covid cases remained on the higher side despite some relief in select states. The country registered 3,06,064 new coronavirus infections taking the total tally of COVID-19 cases to 3,95,43,328, while the active cases climbed to 22,49,335, the highest in 241 days, according to the Union Health Ministry data updated on Monday. 

Expert's take

Parth Nyati, Founder, Tradingo. “We are seeing a meaningful correction in the market and the intensity of selling is very high on the back of heavy FIIs' selling. There is risk-off sentiment across the globe amid fear of tightening by the US fed. We are underperforming today and the main reason is global weakness, while another reason is some margin calls got triggered, especially in new edge companies and that is causing a ripple effect. Anecdotally, Monday remains ugly in a weak market because lots of unwinding is seen by those who carry over the weekend in hope of recovery,” Parth Nyati, Founder, Tradingo.

He said the level of 17150 will be a critical support level which is a 61.8% retracement of the previous rally from 17410 to 18350; below this, we can expect nifty to move towards its 200-DMA that may coincide with 16800 level. “If Nifty manages to recover from the 16150 level then we can expect a pullback rally where 17600-17800 will be an immediate resistance area, said the analyst.

“The overall trend is bullish where we are seeing a period of correction and this may surprise us with a deeper cut but that will be a good buying opportunity. I have a bullish view on Banking, Capital goods, Real estate Infrastructure, and selective auto names,” said Parth.

If we look at the last three years' trend then we see a pre-budget sell-off on the back of global weakness then we see a post-budget rally, said Tradingo founder.

“However the long-term, trend in the first quarter of any calendar year means January to March remains weak. The market is overreacting to US Fed tightening and we may see some short-covering after the Fed meeting outcome scheduled on this Wednesday,” he added.