Five reasons why Sensex sank 500 points in trade today

Blame Bank of Japan Governor Haruhiko Kuroda for Thursday’s over 500-point intraday drop on the Sensex! The index failed to catch up on Wednesday’s smart rally. CNX Nifty also slipped below 7,850, tracking a pullback in Asian and European markets after BoJ defied market expectations for more monetary stimulus even as prices fell deeper into deflationary territory.

The 30-share index ended the day at 25,603, down 461.02 points, while the broad-based 50-share index quoted 7,847, down 132.65 points at the close of E-Live Net.

Big sell-off: 5 reasons why Sensex sank 500 points

“The markets cooled off in the backdrop of weak sentiments coming in from the global markets, especially Japan. We get a sense that the traders are booking profits at these levels. We expect the profit booking to continue over the next few trading sessions. Traders should note that the current decline presents a good opportunity to set up long trades at lower levels as the underlying sentiment is still bullish,” said Karthik Rangappa, VP-Education & Research, Zerodha.

Other than BoJ, below are three more key factors that may have contributed to the big sell-off in the market today:

1) BoJ stands pat on policy

Going against Street expectations, the Bank of Japan held off from expanding monetary stimulus on Thursday even as soft global demand, an unwelcome rise in the yen, and weak consumption threatened to derail a fragile economic recovery.

Reacting to the news, Japan’s Nikkei index tumbled 3.6 percent and rubbed off losses on other global markets, including India.

2) Is the June rate hike a possibility

The US Federal Reserve on Wednesday left interest rates unchanged but kept the door open to a hike in June. The recent policy statement mirrored the one issued after its last policy meeting in March, where Fed policymakers forecast two walks in 2016. Initially, global markets rallied on a dovish Fed stance but lost momentum as the details came out along with BoJ’s unexpected policy move.

3) April F&O expiry

There was also a bit of caution after the April series of derivatives contracts’ settlement, which made investors skittish. In the future, the market may trade sideways as traders roll over positions in the futures and options (F&O) segment to the May 2016 series. The April contracts expired on Thursday.

4) Earnings woes

Earnings woes continued to grip markets after HCL Tech reported March quarter results below Street expectations. The stock fell 4.38 percent on the Bombay Stock Exchange (BSE). Shares of Maruti Suzuki, HDFC, and ITC also contributed to losses on the benchmark indices.