Monday Mayhem: Nifty down over 500 pts, Sensex at 79,330 levels; what spooked D-Street today?

Indian equities in Monday's trade slumped sharply amid weak global cues. Extending Friday's fall-out, equities continued to topple. At the last count, Nifty was down by 2.7 per cent or 674.25 points at 24,043.45, while Sensex was down 2.88 per cent ot 2,334.3 points at 78,647.66 points. Meanwhile, Bank Nifty- a high beta index reflecting banking sector's performance was also down 2.67 per cent. Furthermore, the crack in in the stocks led to nvestors' wealth erosion by Rs 9.51 lakh crore.

Here are the likely reasons for the drag.

Santosh Meena, Head of Research, Swastika Investmart said that the global market is reeling as bears enter with a cocktail of bad news. The fear of a reverse Yen carry trade, following an interest rate hike in Japan, was the initial catalyst. This was compounded by fears of a recession in the USA after extremely poor job data, which spooked market sentiment. China and Europe are already grappling with slowdowns, and escalating geopolitical tensions are adding further pressure on the markets.

Technically, Nifty has support at the budget day low of 24075, with the next support at the 50-DMA around 23900. Below this, the major support lies at the 23300 level. On the upside, 24800-25000 will remain a key resistance area, she added.

Weak Asian markets weigh on sentiments: 

Amid growing concerns of an economic slowdown, Asian markets extended their previous week's fall. Also, Japanese markets are eyeing a bear market and was at the last count was down nearly 7 per cent. Since early July the index has plunged 21 per cent and so considering the extent of loss, the index is entering the bear territory.

The concerns in the Japanese markets came to fore after the Bank of Japan signalled further rate hikes could be on the way.

Soft landing expectation in the US under threat:

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services noted that the rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy. This expectation is now under threat with the fall in US job creation in July and the sharp rise in US unemployment rate to 4.3 per cent. 

Geopolitical tensions:

Geopolitical tensions in the Middle East also are a contributing factor. The tensions are soaring as Iran and its allies are prepping themselves for a response to the assassination of Hamas chief Ismail Haniyeh.

What should investors do?

We are witnessing signs of the first meaningful correction in global markets after an extended bull run. Investors and traders should be cautious and avoid rushing in immediately, as better entry levels may emerge, advises Meena. The outlook for our market remains very bullish, but the potential for a significant correction means investors should consider taking profits where valuation concerns exist, she added.