Why is market falling today? Sensex plunges 700 points, Nifty tests 24,000. 6 key factors behind the selloff

The Indian stock market traded lower on Monday, with benchmark indices Sensex and Nifty falling up to 0.9% as the latest escalations in the Middle East war, rising oil prices and other factors dampened investor sentiment.

Sensex dropped around 712 to 76,857 while Nifty 50 fell 207 points to 24,000 during Monday's trading session. The sharp losses wiped off more than Rs 2 lakh crore in investor wealth, pulling down the total market capitalisation of all companies listed on BSE to Rs 479 lakh crore.

IndiGo, Tata Steel, Asian Paints, Maruti Suzuki, L&T, Eternal, HDFC Bank, UltraTech Cement, Bharat Electronics, Bajaj Finance, Tidal, ICICI Bank, M&M and Bajaj Finserv shares were the top losers on the Sensex, dropping 1-3%. IT stocks including TCS, HCLTech, Tech Mahindra and Infosys meanwhile led gains, rising up to 2%.


Broader markets also slipped into the red, with Nifty Smallcap 100 and Nifty Midcap 100 indices falling up to 0.5% each. This came as India VIX, which measures volatility in market, soared more than 8% to 13.24 in the morning.

Sectorally, Nifty Auto, Nifty Financial Services and Nifty Metal dropped more than 1%. Nifty IT however bucked the trend to rise nearly 0.7%. The overall market breadth was bearish, with 1,625 stocks declining on NSE, while 978 advanced and 123 remained unchanged.

Here are the 6 key factors dampening sentiment on Dalal Street today:

1) Iran-US conflict escalates

The conflict in the Middle East escalated sharply after Iran’s latest strikes on Gulf states following US attacks. Over the weekend, Iran expanded its strikes to Qatar and the United ⁠Arab Emirates, while US launched fresh hits on Iran, in the latest part of a cycle of attacks and counter-attacks tied to shipping through the Strait of Hormuz.

This comes after the fragile interim peace agreement between US and Iran provided a brief period of relief in markets.

2) Oil prices near $80/barrel

Iran said that it has closed the Strait of Hormuz, a critical waterway that accounted for 20% of daily global oil and gas supply shipments before the war. This pushed oil prices higher, although the US insisted that the Strait is open.

Brent crude futures jumped more than 4% to $79 per barrel while WTI Crude futures rose above $74 per barrel. This may revive worries around risks to India’s trade balance.

3) Rupee falls

Rupee opened 0.4% lower at 95.7050 per barrel on Monday, as against the previous close of 95.3250. This came after the sharp increase in oil prices following the latest escalations in the Middle East war.

“Market participants will now shift their focus to next week’s US CPI inflation data, which will be a key determinant for the US dollar and global currency markets. Foreign fund flows and crude oil prices will also remain important factors for the rupee’s near-term direction,” said Jateen Trivedi, VP Research Analyst of Commodity and Currency, LKP Securities.

4) Bond yields rise

US Treasury yields jumped, further dampening equity market sentiment. The yield on benchmark US 10-year notes rose to 4.585% while the 30-year bond yield gained to 5.082%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose to 4.231%. Rising bond yields typically make bonds more attractive to investors, which in turn can lead to some downtrend in markets.

5) Weak global cues

Dalal Street is accompanying its Asian peers in the market downtrend today. South Korea’s Kospi crashed more than 7%, while Japan’s Nikkei dropped around 2% on Monday. China’s Shanghai Composite was down 1.5% while Hong Kong’s Hang Seng was trading with marginal losses.

Wall Street had ended Friday’s session on a positive note, with tech-heavy Nasdaq rising 0.3% and S&P 500 closing 0.4% higher. However, Dow Jones futures are currently in the deep red, indicating a bearish start for the American stock market later today.

6) Profit booking

The benchmark indices today have snapped a two-session gaining streak. Sensex had gained around 1,066 points and Nifty gained 325 points over the past two sessions, despite underlying concerns. Today’s sharp downturn may have also been driven by investors booking some profits after the brief gaining streak.

What lies ahead for Indian stock market?
The back and forth movement in the West Asia crisis has become the new normal, said VK Vijayakumar, Chief Investment Strategist at Geojit Investments. He added that the attempt by Iran to weaponise geography has negative implications for energy importers like India. “And, President Trump’s totally inconsistent stand vis-a-vis Iran has rendered stability a thing of the past. We don’t know how this crisis will pan out,” the analyst said.

“From the market perspective, particularly for India, price of crude is the crucial factor. There is no panic in the oil market like in March. Brent is currently trading around $79. So long as Brent trades below $90, the market won’t be impacted significantly. But if Brent shoots up to above $90, there can be a significant correction in the market. So, watch out for the price of crude,” according to Vijayakumar.

A positive factor that is imparting resilience to the market now is the FII inflows, the analyst said, adding that during the last eight trading days, FIIs were buyers in five days. “The weakness in the chip trade in South Korea is turning out to be positive for India. FIIs are reducing the concentration risk in chip stocks despite their attractive valuations and moving money to stabler markets, where there is no concentration risk and long-term growth prospects are bright. If this trend sustains, Indian market will continue to remain resilient,” he added.

Technical view on Nifty
Anand James, Chief Market Strategist at Geojit Investments, had highlighted that two days of recovery swings have fully achieved Nifty’s objective of 24,229. “While a consolidation is now expected, the favoured view expects upsides to be re-attempted, as long as initial volatility is held above 24,170-24,090,” he said.

However, the analyst cautioned that Nifty’s inability to do so could lend bearish bias, but he does not see the 24040 or 23800 region being broken right away.

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)