The sell-off across Asian markets triggered a sharp crash in the Indian markets. Geo-political tension in West Asia coupled with weak jobs data in the US led to the Nifty 50 nosediving close to 24,000 level on Monday morning.  The index has fallen over 3.5% from its all-time high of 25,078.30.

Similarly, the Sensex fell 3% as soon as it opened to 78,580.46, intra-day. “Mostly export-oriented packs are facing more pressure today like IT however defensives like pharma and FMCG are showing noticeable strength,” said Ajit Mishra, Senior Vice President of Research at Religare Broking.

According to V K Vijayakumar of Geojit Financial Services, the rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy. This expectation is now under threat with the fall in US job creation in July and the sharp rise in the US unemployment rate to 4.3%. 

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Here are the 4 reasons why the markets are bleeding 

• 1. Economic worries in US: In the US on Friday, the stock markets fell sharply on the back of a weaker-than-anticipated jobs report for July triggering concerns about a recession in the country. The Nasdaq dropped 2.43% to close at 16,776.16. That’s almost a 10% drop from its all-time high. The S&P 500 fell 1.84% to end at 5,346.56. The Dow Jones Industrial Average pulled back 1.51% to close at 39,737.26. 

• 2. Geopolitical tension across West Asia This is another reason that’s added to the selling pressure in the market. There was an escalation of worries after the assassination of Ismail Haniyeh, the head of the Palestinian Hamas group’s political bureau. Crude oil prices too are on a upward trajectory as a result.

• 3. Unwinding of the Yen trade: The Japanese market is bleeding and the Nikkei posted its biggest two-day drop in history following the unwinding of the Yen trade. The 4% crash in the Nikkei on Monday morning is an indicator of the crisis in the Japanese market, added Vijayakumar. The sell-off continued with Nikkei 225 and Topix falling more than 10%. The benchmark indices have fallen more than 20% from their all-time highs of July 11.

• 4. US 10-year treasury yield fell to its lowest level since December: Triggering safe-haven buying, the market participants bought bonds for safety. There are concerns that the US Federal Reserve has made a mistake this week by keeping interest rates at current levels. 

What should be your strategy now?

“We feel the decline may extend citing multiple global headwinds. Investors should maintain a cautious approach and refrain from highly overbought sectors/themes like defence and railways,” added Mishra outlining the strategy for markets now. 

However, Tanvi Kanchan, Head of UAE Business & Strategy at Anand Rathi Shares and Stock Brokers said that this sell-off is more of a short-term volatility by way of profit booking and is no indicator of any long-term panic mode set in the Indian equities. She suggested that “for investors looking at entering the equity market, a staggered entry during volatile periods can be considered.”