Here's why Sensex crashed over 1,200 points in two days

Bears continued to weigh domestic markets for the second consecutive day as investors digested hawkish minutes from the US Federal Reserve’s (US Fed) December meeting, which signaled no rate cuts in 2023 until inflation is abated. Key indices the S&P BSE Sensex crashed over 1,200 points in two days to hit Thursday’s low of 60,049 levels, whereas the Nifty50 tumbled over 300 points to hit day’s low of 17,892 levels.
 

Broader markets, meanwhile, outperformed benchmark indices in today's trade as Nifty MidCap 100 and Nifty SmallCap 100 indices rose up to 0.5 per cent.

Sectorally, Nifty FMCG, Nifty Pharma, and Nifty Auto indices held the fort as they surged up to 1 per cent. On the flipside, Nifty Bank, and Nifty IT indices fell up to 1 per cent.

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Despite the dull mood in markets, analysts believe that investors can utilise the weakness to buy high quality banking stocks.
 

“In India the near-term challenge to the market comes from the sustained selling by FIIs who sold Rs 2,620 crore equity in the cash market yesterday, taking their selling spree to 9 consecutive days. FIIs are net short in the derivatives segment too. Data from the banking segment indicates continuing credit growth and improving asset quality which indicates good Q3 results. Investors can utilise market weakness to buy high quality banking stocks,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
 

Meanwhile, here are the key factors behind markets’ slump for two consecutive days:
 

Hawkish Fed minutes: According to minutes from the US Fed’s December meeting, all officials remain determined to fight inflation and expect higher interest rates to exist until inflation is abated. “A restrictive policy stance would need to be maintained until incoming data provided confidence that inflation was on a sustained downward path to 2 per cent,” they said. Moreover, the minutes also reflected that the officials do not expect any rate cuts in 2023.
 

Following this, as investors digested the hawkish reading of Fed minutes, the US equity futures turned negative on Thursday. Dow Jones Futures, the S&P 500 Futures, and NASDAQ Futures declined up to 0.2 per cent. 
 

European markets, too, slumped this noon as DAX, Stoxx 600, and FTSE 100 indices slipped up to 0.2 per cent.
 

Persistent FII selloff: After foreign institutional investors (FIIs) closed the calendar year 2022 (CY22) on a negative note, selling over Rs 1.2 lakh crore worth of equities, they continued to dump domestic equities for the ninth consecutive day. So far this CY23, FIIs have already sold equities worth Rs 3,461.53 crore. However, domestic institutional investors (DIIs) have remained steady, buying equities worth Rs 1,867 crore, during the same period.
 

Weakness in heavyweights: The weakness in index heavyweights weighed on the S&P BSE Sensex in Thursday’s intra-day trade as it cracked over 600 points to hit day’s low of 60,049 levels. Bajaj Twins, Infosys, Axis Bank, Reliance Industries, Titan, ICICI Bank, Wipro, HDFC Bank, IndusInd Bank, and Tech Mahindra tumbled in the range of 0.1 per cent to 7 per cent.
 

Shares of NBFC major Bajaj Finance crashed over 8 per cent after the December quarter (Q3FY23) business update showed moderation in loan growth and assets under management. READ MORE
 

Technical indicators: According to daily charts, analysts believe that the NSE Nifty has formed a bearish candle, weakening the bias and the sentiment is once again maintained with a cautious approach. However, they expect the index to consolidate at 18,300 -17,800 range and form a higher base later. 
 

“We expect the index to resolve above the upper band of consolidation placed at 18,300 and gradually head towards all-time high of 18,900 in the coming month. Thus, extended breather from here on should be capitalised on as incremental buying opportunity as we expect the Nifty to hold the key support of 17,800 in coming weeks,” said analysts from ICICI Securities.