The S&P BSE Sensex lost over 600 points, or nearly 2 per cent, in intra-day trade on Monday. The 50-share Nifty, on the other hand, slipped nearly 200 points to slip below the 10,500 mark in intra-day deals. Last week, while the S&P BSE Sensex ended 1.4% lower, the Nifty50 slipped 1.7%.
"Markets are likely to remain on the edge ahead of the state elections result on Dec 11, especially as the exit polls presented a confused picture in Madhya Pradesh and Chattisgarh. This, in conjunction with surprise breakthrough in OPEC+ production cut has lent renewed support to Brent which would weigh on INR and India bonds," says Madhavi Arora, Economist, forex and rates at Edelweiss Securities.
Adding: "Additionally, the fate of Brexit parliamentary vote on Dec 11 would add another layer of uncertainty in FX space globally. While the outcome of India' s state elections would decide near term direction of the rupee, we remain watchful of unwinding of global events, including that of the US FOMC Dec policy , which could see Fed further reinstating data dependency-led reaction function ahead."
Here are four factors contributing to the weakness on Monday:
Weak global cues: Global stocks traded weak on Monday amid worries over slowing growth and fears that a fresh flare-up in tensions between Washington and Beijing could quash chances of a trade deal. The Shanghai Composite Index retreated 0.8 per cent. Australian stocks lost 2 per cent, brushing its lowest level since December 2016, and South Korea's KOSPI fell 1.1 per cent. Japan's Nikkei shed 2.3 per cent.
Assembly election outcome uncertainty: Besides the weak global cues, the sentiment also turned cautious ahead of the assembly election outcome due Tuesday. The polls are being seen as a litmus test for the popularity of the Narendra Modi-led National Democratic Alliance (NDA) government at the Centre ahead of the general elections due in 2019.
Most exit polls for the recently concluded assembly elections in Chhatisgarh, Madhya Pradesh, Rajasthan, Telangana and Mizoram predicted a Congress resurgence in northern India. Rajasthan, according to the exit polls, was unlikely to break its 25-year-old habit of throwing out the incumbent government, with the Congress slated to win the state. Trends also indicated an end to Bharatiya Janata Party’s (BJP’s) 15-year-rule in Madhya Pradesh.
Crude oil prices: Brent crude oil prices climbed on Monday after Organisation of the Petroleum Exporting Countries (Opec) and some non-affiliated suppliers last Friday agreed to a cut supply by 1.2 million barrels per day (bpd) from January. International Brent crude oil futures were at $61.96 per barrel at 0451 GMT, up 29 cents, or 0.5 percent, from their last close. Experts say every $10 rise in oil price will result in additional fiscal burden of 0.05% of GDP (gross domestic product) for India.
Rupee: The Indian rupee slipped in the early trade on Monday. It opened lower by 54 paise at 71.34 per dollar against previous close 70.80. The dollar-rupee December contract on the NSE was at 70.90 in the previous session.
"USD/INR is expected to trade with a positive bias with buying recommended at lower levels. It has resistance at 71.60, while support is at 71.30 followed by 71.00 mark," says a recent note by Religare Broking.