Why The Markets Fell Today

The Indian equity indices turned out to be the worst performers today (September 3) despite the Asian markets closing the day in the green. The BSE Sensex closed 3.45% down at 18234, while the 50-share Nifty index closed with 3.77% losses at 5341. Earlier in the day, the Sensex had made an intraday high of 19007, and shed 773 points by the day’s end. Similarly, Nifty also closed 239 points down, losing 4% from its intraday high. Banking and Finance, Media, FMCG and Realty shares were hammered the most, and the indices representing these sectors all closed down between 4%-5%.

What triggered this reaction? Well, the market sentiment has been quite weak, which is evident from the fact that investors are reacting sharply to even a small piece of negative information. Everyone seems to want to exit before the situation gets worse. Key events today included the S&P’s warning that there is one in three chance of that India’s credit rating may be lowered. Also, there was news in the afternoon that two missiles were fired by the US in Syria.

S&P’s warning seems to have been discounted by the market already. Note that the market had surged yesterday despite a poor set of GDP numbers. The PMI data announced yesterday also showed that India’s manufacturing PMI has slipped to a 4.5 year low, but that did not deter investors and the markets managed to end the day in positives.

Today, however, there was a knee-jerk reaction to reports quoting Russian news agencies as saying that its Defense Ministry has detected the launch of two ballistic objects towards the eastern Mediterranean. Investors started offloading their positions in panic in order to book profits or at least limit their losses. However, this turned out to be a missile test conducted by Israel and the US.

The markets have turned vulnerable to negative news. This month would be very important for the markets as the US jobless data is due this week and the FOMC’s meeting is due on September 17-18. The RBI has also postponed its policy meeting as it will take its decision only after the Fed’s decision on quantitative easing. We remain highly cautious in the current state of affairs. As of now, it is very difficult to make money from the market.