The Nifty showed signs of getting closer to the 10,500 mark during the week but closed below the 10,200 mark. The selling in the last 2 days was quite hectic taking the markets down sharply. What were the key triggers?

Politics gets shaky…

In India politics tends to have an oversized impact on the markets. First, the markets were already disappointed with BJP losses in Phulpur, Gorakhpur and Araria in the states of UP and Bihar. Secondly, the no-confidence motion that was moved against the Modi regime by Mr. Jaganmohan Reddy and later seconded by Chandrababu Naidu also dampened sentiments in the market. The last straw came when the TDP announced the withdrawal of support to the NDA government. Markets are suddenly feeling that the road to 2019 may have become a lot more complex for the ruling NDA government.

Trade war is an overhang…

Trump’s decision to impose import tariffs on steel and aluminum and his recent decision to take India’s export subsidy issues to WTO have not helped matters. Indian markets are worried about retaliation by the EU and China as well as this entire story degenerating into a currency war. As we have seen in the past, such currency wars have grossly negative consequences.

Why the CAD is looking shaky?

The current account deficit for the December quarter worsening to 2% from 1.4% has hardly helped matters. It opens up the possibility of a weakening rupee plus sovereign downgrades. With FII flows already tepid this year and the US Fed likely to hike rates 3-4 times, markets are seeing room for a lot of pessimism. This gradual negative build-up reached a crescendo this week!