Three reasons why Sensex has crashed over 1,400 points in last 3 sessions

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Just two days after reclaiming five-month highs on Tuesday, the domestic have gone into a tailspin. Over the last three sessions, the BSE Sensex has shed over 1,400 points, while the has slipped 427 points.

On Friday, the Sensex crashed 779 points to the day’s low of 59,934. The Nifty touched an intra-day low of 17,643, down 234 points.

Today’s mayhem in the domestic equities follows a batch of macro reports in the US, which did little to ease concerns about a likely large rate hike by the US Fed next week.

Against this backdrop, analysts say that the domestic market has started showing some indications of fatigue. Globally, the major concern now is that the Fed might oversteer the economy and end up raising rates too much too fast, pushing the US economy into a sharp recession.

“There are talks of the terminal Fed rate rising to 4.25 per cent. Sharply rising rates, rising bond yields and a rising dollar are negatives for equities. In this challenging environment, it would be difficult for India to sustain the decoupling from the global trend, which has been a recent pattern. Moreover, FIIs have halted their sustained buying and have turned into sellers, though this is not yet a trend. Investors should adopt a wait and watch attitude till the Fed meeting is over on September 21,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

That said, here’s a rundown of the reasons behind today’s market plunge:

Mixed economic data in the US: Investors struggled with a mixed set of data on Thursday. While initial unemployment claims fell by 5,000 for the previous week, and manufacturing activity showed a 0.1 per cent uptick, soft retail sales indicated consumers are facing inflationary heat. Retail sales rose 0.3 per cent in August, however, the figure for July got revised lower from flat to a 0.4 per cent slide.

Global weakness: Following the data, US equities nosedived overnight. The S&P 500 and Nasdaq slipped over a per cent each, while Dow Jones was down 0.6 per cent as bond yields rose.

In Asia, China’s industrial output rose by 4.2 per cent from last year, beating expectations. However, this did not lift investor sentiment. Chinese indices slumped upto 1.4 per cent. Nikkei and Hang Seng also fell 0.5-1 per cent.

Investor caution: After Tuesday’s inflation shocker in the US, where the CPI reading rose 0.1 per cent MoM, investors are now exercising caution amid rising bets that the Fed may deliver even a 100 bps rate hike next week, and the cycle could become more aggressive going forward.

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