Sensex sinks below 20000; five reasons why markets came under pressure - Economic Times

NEW DELHI: The S&P BSE Sensex slipped below its crucial psychological level of 20,000 on Thursday following a sell-off in global markets on fears that the US Federal Reserve may discontinue with quantitative easing. The drop in China's May HSBC flash PMI data also raised fears of slowdown in Chinese economy. The S&P BSE Sensex plunged over 400 points in trade, while the Nifty slipped below its key psychological level of 6000 levels, hitting its lowest level since May 14. The Nifty had witnessed a sharp run-up to 6200 levels on the back of cooling commodities prices, lowered domestic inflation numbers, prospects of further rate cuts and global liquidity. "Post one way upside rally in Indian markets, profit booking was very much expected along with that global sell off led by sharp cut in Japanese markets today," said Siddharth Sedani, AVP (Portfolio Management Service) at Microsec Capital Ltd. The 50-share index closed at 5,967.05, down 127 points or 2.09 per cent. It touched a high of 6,081.45 and a low of 5,955.70 in trade today. Aggressive call writing was seen at 6,000 and 6,100 levels on Nifty futures. The Sensex ended at 19,674.33, down 387.91 points or 1.93 per cent. It touched a high of 20,027.56 and a low of 19,634.79 in trade today. We have highlighted five factors which have resulted in the sharp sell off in Indian markets: Bernanke Factor: US Federal Reserve chairman Ben Bernanke's remarks at a Congressional hearing sparked worries of an earlier than expected reduction in U.S. monetary stimulus. Bernanke told the Congress that a decision to scale back the $85 billion in bonds the Fed is buying each month could come at one of the central bank's "next few meetings" if the economy maintains momentum. The minutes from the Fed's most recent meeting released on Wednesday showed the bar was still relatively high. According to analysts, rise in global liquidity is one of the primary reasons of the sharp rally in equity markets across Asia, especially India, where foreign institutional investors (FII) have been net buyers for 25 consecutive sessions. Overseas investors have poured in over Rs 12,000 crore (about $2.2 billion) into the Indian equity market so far the month of May, according to a PTI report. With this, the total foreign investment in the country's equity market has reached over Rs 73,029 crore ($13.5 billion) since January. "Bernanke issued a statement that QE continues at least for now, but one has to remember that a lot of liquidity has already flown into equity markets of late, including developed country equities of Japan and the US," said Gautam Sinha Roy, VP-Equity Strategy & Product, Motilal Oswal Securities Ltd. "So what we are seeing today is unwinding of that trade. Also, one has to remember that while the QE will not come down immediately, at least the probability of that happening within the next six months is now increasing," he added. China PMI Data: China manufacturing PMI survey, which shrank for the first time in seven months, sparked concerns that foreign investors will end their recent buying spree. Tokyo share prices plunged more than seven per cent as investors panicked in the rush to take profit. The flash HSBC Purchasing Managers' Index (PMI) for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first since October and sending Asian financial markets sharply lower, Reuters reported. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNE3mduE84vW4cYY_womIy_wvVSWRQ&url=http://economictimes.indiatimes.com/markets/analysis/sensex-sinks-below-20000-five-reasons-why-markets-came-under-pressure/articleshow/20225787.cms

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