Sensex tanks over 1,000 points today: What is dampening equity markets?

The domestic equity markets have been on a slippery slope in the last two sessions on increasing fears around hawkish outlook from global central banks and unabated rise in oil prices. The BSE Sensex today shed over 1,300 points intra-day while the NSE Nifty slipped below the 17,150-mark. 

The indices, however, recovered some of the lost ground by close with the S&P BSE Sensex ending the day at 57,621 levels, down 1,024 points. The Nifty50, on the other hand, closed 302 points lower at 17,214 levels.

"Monday's weakness can be attributed to heavy selling by FIIs amid rising US bond yields and crude oil prices. FIIs' favorite names and heavyweights like HDFC twins, ICICI Bank, Infosys, Kotak Bank, Reliance, saw sharp cuts. Technically, the Nifty has slipped below its 50-DMA, which is not a good sign. However, 17,200 is a support level where we can expect some recovery. A breach can drag the index towards 17000/16800 levels. On the upside, 17450-17500 will act as a strong resistance," said Santosh Meena, Head of Research, Swastika Investmart.

Here's a look at key factors that dragged the markets on Monday:

Oil prices: With no respite in sight for easing in rising Oil prices, the psychological barrier of $100 a barrel does not appear to be too far. Expectations that global supply would remain tight as fuel demand increases has kept oil prices at the higher levels with the Brent oil futures trading above the $93-mark today. The commodity has risen over 18 per cent since the beginning of the calendar year 2022. In addition, the market is monitoring the ongoing tensions around the Ukraine crisis. 

Further, at its latest meeting, OPEC+ decided to go ahead with the usual modest production hike, foreseeing a gradual increase of 400,000 barrels per day (bpd) in March, keeping unchanged the plan to boost output. This also soured investors. 

Nervousness ahead of RBI MPC meet: The volatility in domestic markets is close on the heels of the RBI Monetary Policy meeting scheduled to be held between February 8-10. The persistent rise in oil prices is seen dampening outlook for the country's inflation trajectory heightening fears that the RBI may seek to raise interest rates. The policy decison is likely to be a major mover for markets when it is announced on Thursday. 

Likely rate hikes by global central banks : Global central banks are becoming more hawkish with calls for monetary policy tightening growing louder among policy makers to battle risks of rising global inflation. The positive labour report in the US on Friday further spoiled hopes around a possible slower pace of rate hikes by the US Federal Reserve. This also triggered fears among investors that the US Fed could raise interest rates by a likely 50 basis points in the March monetary policy meeting.

Although, the European Central Bank kept key interest rates unchanged last week. It, too, has signaled growing concern about surging inflation and a possibility to ease it by raising interest rates. The Bank of England, however, began the process of quantitative tightening and increased interest rates to 0.5 per cent with nearly half the policymakers voting for even a bigger increase. 

Budget cheer wearing off: The budget 2022 was a major mood-lifter for the markets the previous week as its large capex push to revive the economy cheered investors. However, the high spirits on the budget were short-lived as the global concerns have began weighing on equities.