Selling was seen in sectors like energy, telecom, power, metals, and oil & gas while buying was seen in IT, consumer durables and auto index.

The S&P BSE Sensex plunged more than 300 points on May 9 while Nifty50 broke below 11,300 levels intraday but witnessed recovery from its 100-days exponential moving average.

Investors are advised to avoid using leverage and use any bounce to create fresh shorts as long as the index trades below 11,500 levels, suggest experts.

Selling was seen in sectors like energy, telecom, power, metals, and oil & gas while buying was seen in IT, consumer durables and auto index.

Here are 4 factors that contributed to the fall on D-Street:

Weak global markets:

Asian markets hit a fresh eight week low as investors waited to see whether Chinese and US trade negotiators can salvage a deal to stave off the threat of fresh US tariff increases, which would damage global economic growth.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped over 1 percent to its lowest level since March 11, it said.

The Chinese market tumbled and hovered near its 2-1/2-month lows. Shanghai shares slid 0.8 percent, the blue-chip CSI 300 dropped 1 percent, and Hong Kong’s Hang Seng lost 1.7 percent.

Japan’s Nikkei average shed 0.9 percent to a five-week low, South Korea’s KOSPI fell over 2 percent while the Australian benchmark added 0.5 percent.

China warns of counter-measures:

China is fully prepared to defend its interests in its trade war against the United States, but hopes the US can resolve problems through dialogue instead of unilateral steps, said Chinese commerce ministry.

The US Trade Representative’s office said tariffs on $200 billion of Chinese goods would rise to 25 percent from 10 percent at 12:01 a.m. (0401 GMT) on May 10.

The US President Donald Trump said on May 8 that China “broke the deal” it had reached in trade talks with the United States, and he vowed not to back down on imposing new tariffs on Chinese imports unless Beijing “stops cheating our workers”.

Trade war uncertainty is likely to cap the upside for Indian markets at least in the short term, suggest experts.

“The fall in the market could be attributed to the negative news flow from US-China trade talks and election results due at around 14 days. FIIs selling & indication of a slowdown in recent results will add to selling pressure in coming days,” Abhijeet Bajpai, Co-Founder, Avighna Trades told  BUSINESSLEAGE

“In the past couple of months markets have ignored the negative news and rallied unexpectedly, mainly due to higher FII inflows and liquidity. This downside move in the global market started with Trump’s tweet about increasing tariffs and indication of a slowdown in the global economy,” he said.

Morgan Stanley Downgrades Reliance Industries:

Shares of Reliance Industries fell nearly 3 percent intraday after brokerage firm Morgan Stanley downgraded the company to equal-weight, maintaining the target at Rs 1,349 per share.

The brokerage firm expects the earnings growth of the Mukesh Ambani-led company to halve in FY20, after delivering a steady 17 percent compound annual growth rate (CAGR) between FY17 and FY19.

Morgan Stanley said that earnings upswing of the last two fiscal years is likely to reverse and the upside appears limited, as the core business of the company drags.

Technical Factors:

Nifty50 slipped below a crucial support at 11,333 and 11,300 levels. The index recovered sharply after retesting its 100-day exponential moving average placed at 11,254.

The Nifty has breached the junction of the 40-day exponential moving average, the daily lower Bollinger & lower end of a falling channel with a decisive margin. This shows that the bears are having upper hand on the index & are determined to push the index further down on Wednesday.

“The expanding daily Bollinger Bands are assisting the bulls in their task. The intraday momentum indicators, however, are showing oversold readings. This may result in a minor degree bounce till 11450-11480,” Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas.

“Nevertheless, the bounce should be used as a selling opportunity. Hence sell on the rise would be the strategy going ahead. From short term perspective 11100-11000 shall be the target area,” he said.

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