Stock Market Crash: Key factors behind Sensex falling 1,100 points and Nifty dropping below 22,800

Indian equity markets have begun this truncated week on a negative note with the Sensex dropping nearly 1,100 points and the Nifty 50 index also seeing a decline of over 350 points. Every intraday recovery is getting sold into on the index so far.

This comes after the Nifty has declined for seven weeks in a row, during which it has corrected from levels of 24,500 to levels below 23,000. As things stand, the Nifty is now at the lower end of the 23,200 - 22,800 range that the chartists had warned off in case the index breaks below the 23,000 mark.

Why are the stock markets falling?

A combination of both local and global factors are impacting the markets today.

Globally, oil prices remained at elevated levels with no diplomatic solution emerging between the US and Iran over the weekend. Iran continued to stick to its conditions to reopen the Strait of Hormuz even as US President Donald Trump rejected their most recent proposal.

Brent crude prices are trading above the mark of $107 a barrel, while the West Texas Intermediate (WTI) are trading above the mark of $95 a barrel.

The rising oil prices have led to a rebound in bond yields, with the US 10-year back at the mark of 5.2%, and the US 30-year yield also trading above the mark of 5.5%, levels last seen in 2004.

Fed Fund futures are now fully pricing in at least one more rate hike by the Federal Reserve by the end of this year, with the probability of a 25 basis points rate hike in October currently at 68.1%, as per the CME FedWatch tool.

Breaking below key technical levels is also responsible for the accelerated fall on the index. All through last week, the Nifty 50 managed to hold on to the 23,000 mark on the downside, but those levels broke immediately after market open on Monday.

Analysts had warned of the Nifty falling to 22,800 - 22,700 levels in case it breaks below the 23,000 mark. The bulls are now fighting to hold on to the 23,000 mark on the downside.

Another global factor could be a Bank of America survey, which showed that global fund managers have ended their "underweight" position on China after four years and have moved to a "neutral" weightage.

China and Hong Kong-focused ETFs saw inflows worth $19 million in August, after $1.94 billion worth of outflows in July, according to Bloomberg data.

The MSCI China index is now trading at 10.2 times its one-year forward earnings, compared to their 10-year average of 11.7 times.

Some stocks with exposure to Maharashtra have also been impacted after the declaration of drought in the state, with nearly two-thirds of the districts likely to be affected in the state.

It is a very important week for the markets, despite it being a truncated one, as the index will see its monthly expiry on Tuesday, along with the NSE rebalancing. The quarter comes to an end on Wednesday, with Thursday being the start of the Auto Sales figures, along with the quarterly business updates for stocks.