Top 5 reasons why Sensex plunged over 400 points today

The Sensex dived for the fifth straight session on Monday to close at almost one-month low of 31,626.63 by plunging about 296 points, while the Nifty cracked below the 9,900-mark, tracking negative leads from the global market amid foreign funds outflows.

The benchmark opened with gains at 31,986.40 and regained briefly 32,000-mark to touch a high of 32,016.52. However, it quickly slipped into the red and hit a low of 31,474.56 in tune with weak trend at other Asian markets and lower opening of European shares. Bargain buying in the last hour of the trade helped Sensex recoup part of lost grinds to settle at 31,626.63, down 295.81 points, or 0.93 percent.

The index had fallen 501.32 points in the previous four sessions.

The 50-issue NSE Nifty tumbled 91.80 points, or 0.92 percent, to close 9,872.60 after shuttling between 9,816.05 and 9,960.50.

Below are the reasons why Sensex and Nifty extended losses for a fifth straight session today.

Geopolitical tensions

With global equity markets in risk off mode over Korean tensions, the ongoing weakness has gained more momentum.  As per market expert, apart from continuous foreign fund outflows, deep losses at other Asian bourses and the US markets as investors reacted with dismay to lingering worries about North Korea nuclear crisis led to a slide in the Indian equities.

North Korea’s foreign minister said on Monday that the United States had declared war on the country and Pyongyang reserved the right to take countermeasures.

Another Fed rate hike hint

Sentiment was also weakened against the backdrop of imminent Fed rate hike and unwinding of its stimulus measures. The US Federal Reserve has reaffirmed its intention to hike rates in December and normalising its crisis-era stimulus programme into reverse from next month.

Fears of fiscal imbalance

Hardening speculation of widening fiscal deficit after the government indicated a stimulus package meant to jump- start the nation's ailing economy put trading mood into further disarray. The GDP expansion hit a three-year low of 5.7 percent in the April-June quarter with India losing the fastest-growing economy tag to China for the second straight quarter.

Besides falling GDP growth rate, exports are facing strong headwinds and the industrial expansion hit the lowest in five years. There is an increased speculation over a possible fiscal stimulus which can go above Rs 40,000 crore after six successive quarters of dip in the economic growth.

FII outflows

There was no let-up in foreign selling as Foreign portfolio investors (FPIs) sold shares worth Rs 1,241.73 crore last Friday, showed provisional data from the stock exchanges. They have pulled out nearly Rs 5,500 crore from local equities so far this month due to geopolitical concerns and a tendency to take profit.

High valuation

The Indian equity market is trading at a premium to its historic average. However, sounding a note of caution, experts are saying that high stock market valuation driven by excess liquidity is temporary and going forward it will revert to normal levels.