Why is market falling today? Sensex drops 600 points, Nifty below 25,100 as explosive rally hits the brakes. 5 key factors explained

The explosive rally seen in the Indian stock market this month so far hit the brakes on Friday, November 13, with Sensex and Nifty dropping up to 0.9% as a resurge in global AI trade along with other factors dampened sentiment.

At 9.22 AM, Sensex declined as much as 600 points to the day's low of 81,300.46 while Nifty 50 fell over 200 points to trade below the 25,100 level. This came after the benchmark indices recorded sharp gains for 10 consecutive sessions, excluding the short one-hour Muhurat Trading session on Sunday that is typically marked by low volumes.

M&M and HDFC Bank shares dropped nearly 2% each to lead losses on Sensex, followed by IndiGo, BEL, Trent, SBI, Axis Bank, Maruti Suzuki, Eternal and ICICI Bank whose shares fell around 1% each. Bucking the trend, Sun Pharma, Tech Mahindra and HUL shares gained around 1% each.


Broader markets also slipped into the red, with Nifty Midcap 100 and Nifty Smallcap 250 indices recording marginal losses. This came even as India VIX, which measures volatility in the market, dropped 1% to fall below 16.5.

The overall market breadth turned negative, with NSE seeing 1,772 declines against 1,209 advances, while 103 stocks remained unchanged. Among the sectors, Nifty Auto, Nifty Financial Services, Nifty Private Bank and several other indices dropped nearly 1% each.

Here are the 5 key factors pushing the market down today:

1) Inflationary pressures stoke rate hike worries

India’s retail inflation accelerated to 6.09% in October, compared with 5.54% in September, according to data released by the Ministry of Statistics and Programme Implementation on Thursday. This marks the 12th straight month of consumer prices accelerating in the country. The October reading shows inflation has now breached the Reserve Bank of India's target range of 2-6%.

The rising inflationary numbers comes while an increasing number of economists expect the RBI to announce interest rate hike during its upcoming meeting in December. While a 25 basis points increase is expected by most, few analysts also warn that a 50 basis point cut cannot be ruled out.

"We are seeing clear signs of broadening inflationary pressures, with higher energy and raw material costs passing through to core inflation. In addition, food price inflation is picking up, with further upside risks stemming from the impact of weak reservoir levels on the rabi crop. Headline inflation is likely to stay above the RBI’s 6% upper tolerance limit over the next few months," said Vikram Chhabra, Senior Economist, 360 ONE Asset.

Also Read | Retail inflation rises to 6.09% in October, breaches RBI’s upper tolerance limit for first time under new CPI series

2) Oil prices rise

Oil prices jumped back above $95 per barrel on Friday after fresh tensions in the Middle East spooked investors. Adding fuel to the fire, US President Donald Trump said his country does not need a deal with Iran, triggering new worries around prolonged conflict in the oil-rich Middle East and further disruptions to shipments.

Yemen's Iran-aligned Houthis claimed they attacked a pumping station on the Saudi East-West oil pipeline, an oil facility in the Saudi Red Sea city of Yanbu, and an Aramco building ⁠in the capital Riyadh. Meanwhile, the Saudi-led military coalition fighting the Houthis said it intercepted and destroyed two drones launched by the group, one in the Riyadh region and another in the kingdom's oil-rich Eastern Province. Iran's military said four oil tankers were hit by explosions in the Strait of Hormuz after ignoring warnings. Attacks on ship in the Middle East have reportedly increased in recent weeks.

Trump meanwhile said he wanted Vice President JD Vance to focus "his complete and total attention" on any crime and corruption in Democratic-run US cities, saying that effort could save more money than a deal with Iran. "We don't need a deal with Iran. Those days have long since passed. We've got their money, Hundreds of Billions of Dollars, and we've got their Strait!" he wrote in a post on Truth Social.

Also Read | Brent crude climbs above $95 after fresh Middle East attacks; Trump says no need for deal

3) AI trade back in action

The AI trade was expected to see a sharp impact from Nvidia CEO Jensen Huang’s resignation after his extramarital affairs came to light. However, Asian markets remained resilient on Friday, with South Korea’s Kospi, seen as the face of the volatile AI trade, opening more than 2% higher. Taiwan Weighted and Japan’s Nikkei gained around 1% each. Wall Street futures are also in the green.

Analysts say India bears an ‘anti-AI’ advantage, for which the market was rallying when the entire global stock market was crashing as the AI frenzy fizzled out. However, the resilience in the global AI trade today may be dampening sentiment on Dalal Street.

4) Profit booking

Today's fall in the Indian stock market comes after the skyrocketing rally that pushed Sensex and Nifty around 12% higher since late October. This may have been driven by some traders resorting to profit booking after the explosive rally. After such a sharp run up, analysts had pointed out that some consolidation was on expected lines.

5) Bond yields rise

As inflationary pressures spiked, bond yields resumed their upward trajectory. The yield on the 10-year US Treasury notes rose to 5.125% while that on the 30-year bonds rose above 5.45%. The two-year bond yield, which moves in tandem with Fed rate hike expectations, stood at around 4.86%.

Rising bond yields make the comparatively stable debt market more attractive than the riskier equity markets, which typically leads to some downturn in the latter.

What lies ahead for Dalal Street?

After the spectacular rally of 10% in Nifty so far in November, the important question in the minds of investors is whether this rally can sustain. The most important trigger for the swift rally was the aggressive comeback of the FIIs assisted by the weakening of the AI trade and improving earnings growth in India, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He noted that indications are that the FII buying will continue taking the monthly inflows easily to above Rs 1 lakh crore, which will be a record high. With this kind of aggressive FII buying, the bears will be on the back foot, he said.

However, there are headwinds emerging that can spoil the party, the analyst warned. “Rising inflation in the US and India means a rising interest rate scenario which can turn out to be adverse for equity markets. In the US two rate hikes are likely in December and January. With the October CPI inflation in India rising to 6.09 %, the RBI will have to raise rates at least by 25 bp each in December and February. These concerns along with the ongoing DII profit booking can apply brakes on the rally, in the near term,” he added.

Technical view on Nifty

Going ahead, Nifty is likely to consolidate in the broad range of 24,700-25,500 amid stock specific action as we progress through the fag end of the quarterly earning session, said Pabitro Mukherjee, Deputy Vice President-Research, Bajaj Broking. He noted that the index has seen a strong up move of more than 3,000 points in the just 12 sessions. Hence, some consolidation cannot be ruled out at higher levels. Only a strength above 25,500 will open further upside towards 25,800-26,000 levels in the coming week, according to the technical analyst.

“The index has support placed at the last week breakout area of 24,700-24,800. Nifty holding above the same will keep the overall bias positive and dips should be used as a buying opportunity,” Mukherjee said. On the upside, he sees the index finding resistance at 25,390 and 25,500. On the downside, he sees support at 25,140 and then at 25,050.

Also Read | Rs 80,000 crore FII buying sparks explosive rally on Dalal Street. Will RBI rate hike worries kill the party?

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.