Indian shares extended losses on Friday to trade more than 2 percent lower, tracking global peers after Dow Jones Industrial Average plunged more than 1,800 points overnight. The benchmark 30-share BSE S&P Sensex plunged over 1,000 points in early trade amid sustained selling, while the broader 50-share NSE Nifty50 opened below 9,700. At 12:15 pm, indices recovered with the Sensex still trading over 500 points lower, or down more than 1.5 percent, at 33,016, while the Nifty was at 9,760, down 142 points or 1.4 percent.

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Here are the five factors that contributed to a sharp correction in the markets today:

Sell-off in Asian markets:

Asian shares fell sharply following an overnight plunge in Wall Street that fell more than 5 percent, registering its worst day since mid-March. US markets posted their biggest one-day loss since March 16.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.52 percent, after a strong run-up in recent weeks. Australian stocks dropped 1.89 percent, while shares in China fell 0.45 percent.

The Dow Jones Industrial Average declined 1,861.82 points, or 6.9 percent, to 25,128.17, the S&P 500 lost 188.04 points, or 5.89 percent, to 3,002.1 and the Nasdaq Composite dropped 527.62 points, or 5.27 percent, to 9,492.73.

Concerns over the second wave of coronavirus infections:

Renewed fears of a coronavirus resurgence in the United States spooked investors. The pace of growth in new cases has recently picked up again, although the increase may be partly due to more testing. The one-week moving average of daily new cases stands at 30,553. This measure fell to 27,753 on June 1, from a high of 44,000 on April 14, a Reuters report said.

Meanwhile, India has surpassed the UK to become the fourth worst-hit country from the pandemic. India recorded over 2.97 lakh COVID-19 cases on Friday after 10,956 new patients were registered in the past 24 hours, said the Union health ministry. After 396 deaths were reported in a day, the COVID-19 toll in the nation reached 8,498.

FIIs turn net sellers:

The Foreign Institutional Investors (FII) have turned net sellers in the last two trading sessions. FIIs have pulled out Rs 919 crore on 10 June, and Rs 805 crore on June 11 in the cash segment. However, FIIs remain net buyers in June, pumping Rs 13,507.20 crore into the Indian equity market.

Bleak economic outlook:

With the protracted lockdown pushing the Indian economy into a deep recession in the current fiscal, the escalating new COVID-19 cases after easing of restrictions pose further downside risks to the economic outlook, IHS Markit said on Friday. "This protracted lockdown has resulted in the severe disruption of industrial production and consumer spending, with GDP growth forecast to contract sharply during Q2 2020 (April-June), pushing Indian GDP growth for the 2020-21 financial year into a deep recession," it said in a commentary on assessing the impact of COVID-19 on the Asia Pacific region.

Technical factors:

The Indian markets followed global cues which were trading in deep cuts with the Nifty breaching the 10,000 mark and correcting further to end the day around 9,900 on Thursday, the weekly expiry day.

In the last few sessions, Nifty has seen that any dip in the range of 9,900-10,000 was being bought into. However, the market breadth was negative yesterday and broader markets witnessed sell-off thus jeopardising the support of 9,900. With the overnight fall in the global markets, Nifty opened with a big gap down on Friday. The follow-up move post the gap down will be crucial and volatility is likely to increase, analysts said.

"The markets opened with a gap down and have made a low of 9,545 after which it has bounced. What needs to be seen is if the level of 9,640 is breached again. If that happens, we should witness more downside pressure which could take the Nifty down to 9,450. For any upside to get activated, we need to cross 9,850," said Manish Hathiramani, Index Trader and Technical Analyst, Deen Dayal Investments.

-With inputs from agencies

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