Recession fears trigger huge selloff

Domestic markets came under heavy selling pressure on Monday, following selloff in the global markets on worries about slowing global growth.

The Sensex plunged 355 points to end at 37,808, while the Nifty ended 102.65 points lower to close at 11,354.25.

Investor sentiments was dampened after weaker-than-expected economic data from the US and Europe last week stoked fears of a global slowdown. The trade worries between the US and China too added to the worries, brokers said.

The Sensex has now lost over 575 points in two sessions.

Most other Asian markets ended sharply down, while European shares were trading lower in their opening sessions.

According to analysts, the inversion of US bond yield curve (between 3 months and 10 year) has led to concerns of possibility of US economic recession, as historically inversion of yield curve has always preceded the impending recession. Further, the macro-economic readings such as PMI from Germany and France have not helped as some of them came at multi-year lows. In summary, the markets are worried that global slowdown is a high probability scenario now.

Technical View
"Further, after breath-taking rally of past 20 days, Indian markets were due for correction. The inversion of bond yield curve has provided the trigger for the same. Going forward, the central bankers reaction to this imminent global slowdown (in terms of easy monetary policy, etc), upcoming corporate results season and political dynamics will hold the key, " said Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited.

Nifty has closed in the negative territory in the last trading session and with that its the second consecutive negative close in the Index. However, it has taken a support at 11300 levels which is a crucial short term support, said technical analysts.

"The immediate resistance on the upside is pegged at 11400 levels; hence the short term range for the Index is 11300-11400 levels. The Index once this consolidation is over will test 11250 levels where the shorts should be covered and fresh longs should be initiated, said Jay Thakkar, CMT Head Technical and Derivatives Research - AVP Equity Research, Anand Rathi Shares and Stock Brokers.

The market had a sharp up move in the short span, so some profit booking was clearly on cards, analysts said.

"As far as levels are concerned, the support lies in the zone of 11310 - 11264 and on the upside, 11395 followed by 11434 are now likely to act as immediate hurdles. At this juncture, the ideal strategy would be not to have a contrarian approach and should pick out stocks that are on the move or have corrected at the support levels," said Sameet Chavan Chief Analyst-Technical and Derivatives, Angel Broking.

From the sectoral basket, the banking index led to this last hour recovery and thus, dominance from this heavyweight index is likely to continue henceforth. Apart from this, 'Mid-Cap' pocket showed tremendous resilience.