Why Sensex Slumped Over 500 Points Today

The BSE Sensex fell over 500 points on Monday and breached the psychological 29,000 levels tracking weakness across global stocks. In point terms, today’s fall is the single biggest since January 6, when the Sensex had crashed 850 points. The broader Nifty slumped over 150 points to an intraday low of 8,777.

Here are the reasons for the sharp selloff in markets today,

1) Fears of rate hike in US: On Friday, US reported stronger-than-expected jobs data; unemployment rate in the world’s biggest economy hit a 6-1/2-year low of 5.5 per cent in February. Falling unemployment signals rising strength in the US economy, but it has led to fears that the Federal Reserve may raise interest rates sooner than previously thought. If interest rates in the US go up, a lot of liquidity is expected to flow into US bonds, which will be negative for emerging markets like India.

2) Selloff in banking stocks: The Bank Nifty, which is the index of frontline banking stocks, fell over 500 points, partly on account of profit taking and also over concerns that banks will have to lower interest rates at a time when bad loans continue to weigh on balance sheets. The RBI last week unexpectedly cut repo rate by 25 basis points to 7.5 per cent. Analysts expect banks to lower their base rates starting April, a move that could hurt bottom line at a time when credit offtake continues to be sluggish. Private lenders such as ICICI Bank and Axis Bank led the fall.

3) Selloff in IT stocks: Tata Consultancy Services shares fell as much as 3.2 per cent after India’s biggest software services exporter said on Thursday that fourth-quarter revenue is expected to be in line with last year trend. TCS reported a 1.9 per cent sequential revenue growth in US dollar terms for the fourth quarter of 2013-14 which would put the January-March quarter growth at below current estimates, analysts said. Religare downgraded the stock to “hold” from “buy”. Mindtree, a midcap IT firm, also issued a profit warning, triggering a 6 per cent slump in its shares. The developments weighed on the broader IT sub-index, which underperformed the broader Sensex. (Read the full story)

As of 1.27 p.m., the Sensex traded 498 points lower at 28,951, while the broader Nifty was down 154 points at 8,784.

(With inputs from Reuters)

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