Sensex tanks 1,250 pts from day’s high; 3 reasons for the sharp U-turn

Equity benchmark indices took a sharp U-turn in Friday’s intra-day trades amid selling pressure in key index heavyweights namely – Reliance Industries, HDFC Bank and Larsen & Toubro.

The S&P BSE Sensex had come within striking distance of its summit as it hit a high of 75,095. The all-time high for the Sensex stands at 75,124. The BSE benchmark thereafter erased gains and nose-dived to a low of 73,831 – down 1,264 points from the day’s high.

Its counterpart, the NSE benchmark index, the Nifty 50 registered a fresh life-time high at 22,795, and then tumbled to a low of 22,455 – down 340 points in intra-day deals.

At 12:30 pm, the S&P BSE Sensex was down 625 points at 74,000, and the Nifty was down 150 points at 22,500.

Meanwhile, in the broader market, the BSE Midcap index was down 0.5 per cent, while the SmallCap index shed 0.8 per cent.

Here are the three key reasons for Friday’s sharp fall.

Profit-taking: Benchmark indices were quoting at record high levels, with the Sensex and Nifty gaining over 4.5 per cent from their recent lows in the last two weeks.

Kranthi Bathini, Director of Equity WealthMills Securities points out that this is the second time the Nifty has retraced sharply after crossing the 22,700 level.

There seems to be lack of follow-on buying at higher levels, hence the 22,700-22,800 zone is seen acting as a stiff resistance, said Kranthi.

The analyst expects the Nifty to exhibit range-bound trade in the near-term, with overall bias likely to remain positive as long as the Nifty sustains above 22,200.

Chart check: Technically, the Nifty is seen facing persistent resistance around its super trend line, which stands at 22,740. The index will need to conquer this hurdle in order to rally higher.

On the downside, immediate support for the Nifty is seen at its 20-DMA (Daily Moving Average) at 22,455 followed by the 50-DMA at 22,300 levels.

Key momentum oscillators are signaling a mixed bias, with the RSI (Relative Strength Index) and the MACD (Moving Average Convergence-Divergence) in neutral mode. The Stochastic Slow has turned marginally negative on the daily scale. Further, the DI (Directional Index) signals lack of strength for either the bulls or bears.

The S&P BSE Sensex is expected to face resistance around 75,200 – 75,700 zone followed by 73,600. Above which, the BSE index can potentially rally to 78,000 levels. On the downside, the Sensex will seek support around 73,700 levels, followed by 72,400.

FII selling: After a pause in March, foreign institutional investors were heavy sellers of stocks worth Rs 35,700 crore. In the first trading session of May, FIIs net sold shares to the tune of Rs 964 crore.

Post the recent US Fed meeting, hopes of an interest rate cut has been pushed back to November this year. With rates staying-higher for longer and bond yields at elevated levels, experts believe foreign investors may prefer to remain on the sell side of trade for now.