The benchmarks are nearing intermediate support zones and if buyers refrain from buying, then the market may weaken further in the next few sessions.
Following are the factors that have hurt investor sentiment in trade today:
Crude oil: The global crude oil prices are in a downward spiral and have fallen to April 2009 lows. The Nymex crude oil slipped below $50 a barrel on concerns of oversupply. This resulted in a sharp correction in global markets, including India.
"Crude has created a lot of uncertainties in global markets, which are adversely impacting the Indian market sentiment. The recent foreign fund sell-off in equities and decline in the rupee's value can be attributed to this constant fall in crude prices," said Tirthankar Patnaik, India strategist and head of research of Mizuho Bank, adding that "hence, free-falling crude poses serious challenges for the markets."
The supply glut is also being attributed to lack of demand as most of the major global economies are facing a slowdown. A global economic slowdown may impact Indian exports to Europe and other countries.
Traders are worried that the US crude may hit $40 per barrel area if the weekly US oil inventory numbers show supply build-up. The global oil market is likely to be flooded in 2015 with Russia, Iraq, West Africa, Canada and the US ramping up supplies. At the same time, Saudi Arabia is offering its biggest discount in 14 years to Asia consumers.
According to Mixo Das, Asia ex-Japan Equity Strategist, Nomura, a further downside in crude prices can't be ruled out. "Increase in supply, strong dollar reasons behind fall in crude price," he told in an interview to ET Now. He expects global equities to react negatively on the back of falling crude prices.
This will result in lesser funds in hands of oil exporting companies to invest in emerging market like India.
"The sources of funds that invest in India are primarily sovereign wealth funds, pension funds and insurance funds. If Norway, Saudi Arabia, Abu Dhabi, Qatar, or Kuwait are not going to see surpluses, then they will have less capital to send out, which means capital flows into India will not be as strong as they were," said Neelkanth Mishra, managing director and India equity strategist at Credit Suisse.
Greece: Concerns that Greece may exit eurozone is making global investors jittery. This has led to a sharp fall in euro-zone as risk-averse investors are looking at the US dollar as a haven in times of
According to Bodke, the domino effect of a potential Greek exit is bound to wreck havoc in financial markets with speculators then trying to identify the 'next vulnerable' eurozone member.
Interest rates: Even as the market remains optimistic that the Reserve Bank of India may cut interest rates in February, whether the Governor will oblige is anybody's guess.
The Reserve Bank's latest Financial Stability Report indicates that interest rate cuts might not be imminent. In its recent report, the RBI said, "Latest projections suggest that CPI ( Consumer Price Index) inflation over the next 12 months may hover around 6 per cent, if the international crude prices remain around the current levels and the monsoon next year turns out to be normal."
"The Financial Stability Report, which assesses the overall financial sector, is cautious in its outlook," said Siddhartha Sanyal, chief India economist at Barclays Capital. "RBI will decide on a rate cut only after it is comfortable with the macro developments, including inflation numbers," he added.
Jayant Sinha, Minister of State for Finance, in an interview with ET, said, "We have to rely on the excellent professional judgement, the data-driven and fact-based approach of RBI to take the right call at the right time."
Lacks of FIIs inflows: The foreign institutional investors were not aggressive buyers in December and the trend may continue this month as well.
The Sensex fell over 2 per cent in December as FIIs inflows reached a 10-month low. FIIs have made a net investment of Rs.2,132 crore in the stock markets in December. This was the lowest investment by FIIs in a single month since last February, when they had pumped in a net amount of Rs.1,404 crore.
Following a sharp fall in crude oil prices, slowdown concerns in China, Europe and Japan, and uncertainty over Greece elections, the risk-averse institutional investors are likely to buy US dollars in anticipation of interest rate hike in 2015.
Q3 Earnings: The third quarter earnings are round the corner and there are little hopes of suprises. The export-based sectors such as IT and pharma are likely to meet expectations following the rupee depreciation against the US dollar. The auto sector may show some uptick following a pick-up in sales.
Largely, analysts are expecting corporate earnings to be similar to Q2 performance. The old economy sectors may underperform as industrial activity has not picked up.
"In Q3, the growth in corporate earnings could be similar to not so encouraging performance in Q2 as the corporates adjust to the sudden changes in the commodity prices, especially crude oil and its derivatives. A possible mark down of inventory as per accounting standards is also one of the reasons that could put pressure on overall earnings growth during the Oct-Dec quarter," said Hemang Jani, Senior Vice President, Sharekhan.
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