Reason for Sensex crashing to 13 month low

The BSE Sensex  and Nifty are trading near 13 months low and have declined 17% from the 2015 High which we saw on 04 March 2015.  In Just 6 months Stock market have wiped out the gains made in past 13 months.Let me put the reason from both Technical and Fundamental Perceptive Sensex corrected by 500 points Nifty almost 200 Points making today as Black Friday.

Fundamental

  • Concerns over Fed rate hike
Equity Market likes liquidity, Friday Strong US jobs data and Unemployment rate coming sub 6%  fueled expectations that the US Federal Reserve may raise interest rates sooner than previously thought.
Hike Rate means sucking liquidity out of system and this will flight to safe assets in Bonds and stronger currency like USD and money getting sucked out of Emerging market. India Markets have received $11Billion in 2015 till date and up 8% till date so profit booking can be done by FII’s.

  • Expensive valuations of Stock Market
 Valuation for Indian markets at 19.4x on FY15E (16.6x on a rolling one year forward) and 22.5x on CAPE basis which are above long-term averages.
Sensex is trading at more than 20 times FY15 and 17 to 18 times FY16 earnings, ALSO PE (Price to Earning Ratio) as discussed was touching 24 before correction has started and still trading around 21 so valuation are still not reasonable.

  • No Pick up in Earnings growth
It will take at least two quarters for the easy monetary policy benefits to trickle down and pick-up in earnings growth is likely to be the next big trigger for markets. The third quarter results were quite disappointing worst quarter result in almost 5 years.

Dollar gaining strength

The dollar index is gaining strength against basket of currencies including rupee. Yesterday Mario Darghi has also said to increase QE which will further weaken Euro and Dollar will rise is due course.

  • Slowdown caused by China and Yuan Devaluation
Global stock markets are tumbling after a survey showed Chinese factory activity contracted at their fastest pace since the depth of the global financial crisis in 2009. Fears of a China-led global economic slowdown drove Wall Street, previously seen as a safe-haven, to its steepest one-day drop in nearly four years on Friday.

  • Rupee at lowest since September 2013
Rupee slumped to as low as 66.48 per dollar on Monday morning. It is lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown.

Technical

  • Trading below 200 DMA/8k Level : Nifty/ Sensex  are trading well below its 200 DMA, putting pressure on market, as many FII’s have 200 DMA benchmark for buying or selling.Break of sacrosanct level of 8k and closing below it for 2 week is sign of weakness.
  • Gann Date Effect- As discussed in Weekly Analysis Gann/Appoint and Gunner plays an important role in finding impulsive move, all studies were pointing towards a big move.
  •  NF opening volume in first 15 mins was 25 Lakh highest seen in past 2 years suggesting serious long liquidation by smart money.