It was carnage across global markets, with the Nifty and the Sensex dropping sharply after US President Donald Trump ordered trade barriers on China. Here are 4 reasons why the Sensex cracked 460 points and the Nifty fell below the 10,000 points.
Tensions over trade barriers mounted after US President Donald Trump instructed US Trade Representative Robert Lighthizer to slap tariffs on at least $50 billion in Chinese imports.
This sparked a massive sell-off across Asian markets, impacting Indian indices as well. The Nifty dropped below the 10,000 points and the Sensex fell below the 33,000 points mark. The Nifty had for the first time hit the 10,000 points mark on July 25, 2017 and eight months after, we are still at the same levels.
Marketmen see further downside, if trade tensions escalate, as China has already planned to levy fresh tariffs on US products.
Carnage across Asian markets
It was a sea of red across Asian markets after the Dow Jones dropped 700 points. The Japanese market was the worst impacted with the Nikkei falling a huge 3.95 per cent, led by losses in Toyota and Sony.
In Korea, the Kopsi lost as much as 2.2 per cent, as stocks led by Samsung declined sharply. The Hong Kong's Hang Sang and the Shanghai Composite also fell sharply dropping as much as three per cent.
In Mainland China, the drop was led by names like Baoshan Iron & Steel and Aluminium Corporation of China. Fall in stocks was largely linked to major exporters of goods, particularly to the US.
Markets were looking extremely weak since the start of the week and analysts had warned that this was a "sell-on-rally" kind of market. Investors were warned that should 10,100 points be taken on the Nifty, the slide could be more acute and a drop below the 10,000 points on the Nifty cannot be ruled out. This is precisely what happened and all support levels have been breached.
There maybe now a fresh round of selling from Foreign Portfolio Investors, given how trade barriers may impact most markets across the world and also lead to retaliation.
A further breach below the 9,880 levels could lead to more downward pressure in the coming days.
Liquidity constraints due to year-end
Liquidity conditions are very tight, given that we are approaching March 31, 2018. Apart from this investors are in selling mode, given that we are nearing the deadline when Long Term Capital Gains on shares would be implemented.
Any recovery in shares is leading to a fresh round of selling pressure. Also, the inflows into mutual funds, which have so far helped to support the market is fast drying up with the imposition of Long Term Capital Gains on mutual funds as well. Apart from this, dividends on mutual funds would now be taxed making things worse for the industry.