Three reasons why Sensex has crashed over 1,700 points in last 3 sessions

Just two days after reclaiming five-month highs on Tuesday, the domestic markets have gone into a tailspin. Over the last three sessions, the BSE Sensex has shed 1,730 points, while the NSE Nifty has slipped 539 points. 

On Friday, the Sensex crashed over 1,200 points intra-day before closing at 58,841, down 1,093 points or 1.82 per cent. The NSE Nifty50, too, sunk to a low of 17,505 before shutting shop at 17,530, down 346 points or 1.94 per cent.

Today's mayhem in the domestic equities follows a batch of macro reports in the US, which did little to ease concerns about a likely large rate hike by the US Fed next week. 

Against this backdrop, analysts say that the domestic market has started showing some indications of fatigue. Globally, the major concern now is that the Fed might oversteer the economy and end up raising rates too much too fast, pushing the US economy into a sharp recession. 

"There are talks of the terminal Fed rate rising to 4.25 per cent. Sharply rising rates, rising bond yields and a rising dollar are negatives for equities. In this challenging environment, it would be difficult for India to sustain the decoupling from the global trend, which has been a recent pattern. Moreover, FIIs have halted their sustained buying and have turned into sellers, though this is not yet a trend. Investors should adopt a wait and watch attitude till the Fed meeting is over on September 21," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

That said, here's a rundown of the reasons behind today’s market plunge:

Mixed economic data in the US: Investors struggled with a mixed set of data on Thursday. While initial unemployment claims fell by 5,000 for the previous week, and manufacturing activity showed a 0.1 per cent uptick, soft retail sales indicated consumers are facing inflationary heat. Retail sales rose 0.3 per cent in August, however, the figure for July got revised lower from flat to a 0.4 per cent slide.

Global weakness: Following the data, US equities nosedived overnight. The S&P 500 and Nasdaq slipped over a per cent each, while Dow Jones was down 0.6 per cent as bond yields rose. 

In Asia, China’s industrial output rose by 4.2 per cent from last year, beating expectations. However, this did not lift investor sentiment. Chinese indices slumped upto 1.4 per cent. Nikkei and Hang Seng also fell 0.5-1 per cent. 

Investor caution: After Tuesday’s inflation shocker in the US, where the CPI reading rose 0.1 per cent MoM, investors are now exercising caution amid rising bets that the Fed may deliver even a 100 bps rate hike next week, and the cycle could become more aggressive going forward.