Five factors that led to Sensex's 806-point fall on Thursday

Falling prey to the global contagion amid rising oil prices and sliding rupee, the domestic equity market came under heavy selling pressure on Thursday. The S&P BSE Sensex took a massive 806-point, or 2.14 per cent, cut to settle at 35,169 levels, while the broader Nifty50 ended at 10,599 levels – down 259 points, or 2.39 per cent.

Among specific stocks, RIL plunged 7 per cent to Rs 1,120 per share, followed by HeroMoto Corp (5.45 per cent) and TCS (4.54 per cent). Bucking the trend, ICICI Bank rallied 4 per cent on reports that the bank's board has accepted Chanda Kochhar's resignation as its MD & CEO.

Anxieties over the Reserve Bank of India (RBI) adopting an aggressive stance in its monetary policy due to a rise in inflationary pressure led to an erosion in investors' risk appetite, analysts say. With deteriorating macros, all eyes will now be on the second quarter earnings and how the current liquidity situation is addressed.

“The strongest of businesses and the bluest of blue chips have cracked in the last couple of sessions, which highlights the prevailing negative sentiment and an environment of pessimism. With the rupee hitting record low, crude prices moving northwards, increasing fears of a broadening current account deficit along with the liquidity worries led to another major fall in the indices and broader markets,” said Devang Mehta, head of equity advisory at Centrum Wealth Management.

Here are the key reasons that led to a sell-off on Thursday.

Global cues: A bond sell-off that sent benchmark US Treasury yields to the highest since 2011 spread into Asia and Europe on Thursday, spurring more gains for the dollar and triggering widespread declines in equities. Higher US yields are anything but favourable for emerging markets as they tend to draw away much-needed foreign funds while pressuring local currencies. MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.7 per cent in response, with South Korea, the Philippines, Indonesia and Taiwan all down. Even the Nikkei eased 0.3 per cent, as rising yields offset the boost to exporters from a weaker yen, said a Reuters report.

Rupee declines further: The rupee slipped past the crucial 73.50 levels and opened at 73.70 against the US dollar. In intraday trades, the hit all-time low of 73.81, owing to a rise in crude oil prices. On the global front, the dollar climbed an 11-month top on the yen on Thursday as stunningly strong US economic data drove Treasury yields to their highest since mid-2011, while Japanese stocks attempted to re-claim a 27-year peak.

Crude oil prices: Rising crude oil prices was another factor that sent the stock market crashing. Oil held near four-year highs on Thursday, supported by the imminent loss of Iranian supply through US sanctions, but also tempered by the prospect of a rapid production boost from Saudi Arabia and Russia. India imports more than 4 million barrels per day (bpd) of oil and is one of the biggest buyers of Iranian crude, along with China, and has been hurt by a slide in the rupee against the dollar.

RBI policy outcome: The markets are also nervous ahead of the RBI policy outcome. Given the meltdown in rupee and soaring crude prices, it's almost certain that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will raise the repo rate for the third time in a row on Friday. Most of the analysts are pencilling in a 25 basis points rate hike by RBI, when it announces monetary policy tomorrow. However, the key thing to watch out for this time around will be whether the central bank RBI changes its policy stance from neutral to dovish.

Sharp fall in stocks of oil marketing companies (OMCs): Government's decision to cut excise duties on petrol and diesel prices and OMCs to absorb Re 1 per litre towards the fag end of the trading session was another nail in the coffin for the already depressed market on Thursday. Soon after the announcement, OMC stocks tumbled up to 23%. By close, HPCL tanked 12 per cent to settle at Rs 221, while BPCL (down 11%) and IndianOil (down 11%) closed at Rs 336 and Rs 141, respectively.