Bears are back! Sensex ends 4-day bull run: 5 factors behind today's selloff

Benchmark equity indices snapped their four days of winning run and closed in the red on Wednesday amid weak global markets as banks and financials declined with HDFC twins, SBI and Axis Bank dragging the most.

The 30-share BSE benchmark Sensex declined 347 points or 0.55% to settle at 62,622. The broader NSE Nifty dropped 99 points or 0.53% to end at 18,534.

From the Sensex pack, Axis Bank, SBI and Reliance were the top laggards, falling over 2% each. HDFC, NTPC, HDFC Bank, Tata Steel, and UltraTech Cement also closed with losses. On the other hand, Bharti Airtel, Asian Paints, Sun Pharma, Kotak Bank and Tata Motors ended with gains.

Sectorally, Nifty Bank declined 0.69% and Nifty Financial Services fell 0.82%. Whereas, FMCG, IT, media, pharma, realty, healthcare, and consumer durables closed higher. In the broader market, Nifty Midcap100 gained 0.37%, and Smallcap100 rose 1.03%.

The market breadth was skewed in favour of bears with 1,794 declines and 1,719 advances on BSE.

"As indicated by multiple economic data points, the Indian economy is presently experiencing a robust recovery, leading to an upward trend in domestic equity markets. However, the rally is being hindered at times due to negative signals from global peers, as observed today," Vinod Nair, Head of Research at Geojit Financial Services, said.

Concerns about a recession and potential interest rate hikes in western markets are impacting the domestic market but it is nevertheless maintaining the outperformance, Nair added.

Here are 5 key factors driving the stock market lower:

1) Global Markets
Lacklustre action in the global market weighed on Indian indices. Top Asian bourses, including Japan's Nikkei, Hang Seng Index, Shanghai Composite and Strait Times traded in the red. Dow futures were down by over 100 points or 0.33%, signalling a negative start for US markets.

2) China Factor
Weak factory activity data from China heightened concerns about its stuttering economic recovery and the impact on the rest of Asia, driving equities worldwide lower, including in India. China's manufacturing activity contracted faster than expected in May on weakening demand, data showed on Wednesday, with the official manufacturing purchasing managers' index down at 48.8 against a forecast of 49.4.

3) Profit Booking
Profit booking was prevalent in bank and financial services stocks with heavyweight HDFC Bank contributing most to the declines. It was accompanied by Reliance Industries which was another top laggard in the Nifty50 pack. The losses come after four days of back-to-back rallies which drove Sensex and Nifty near to their all-time highs.

4) Technical Factors
Sameet Chavan, Head Research, Technical and Derivatives at Angel One estimated the going to be uneven for the day. "We reiterate that the momentum might not be swift and it’s clearly visible with back-to-back small candles on the daily chart. The apt strategy would be to take advantage of intraday declines to go long and secure small profits at higher levels," Chavan said.

In terms of levels, the previous resistance at 18,400 is now anticipated to act as a strong support level. On the flip side, the range of 18,780–18,900 is considered an immediate resistance zone, the Angel One analyst said.

5) MSCI Rebalancing
In the run-up to the adjustment, shares of Adani Transmission and Adani Total Gas were trading down nearly 3%. The exit of Adani Transmission and Adani Total Gas will result in outflows of $189 million in the case of Adani Transmission and $167 million in the case of Adani Total Gas. Moreover, 21 stocks will see their weights getting reduced against 16 stocks whose weights will go up.

Index provider MSCI's rebalancing will come into effect at the close of markets and that generally leads to inflows into stocks, Reuters reported.

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