The Indian stock market experienced a significant downturn on Thursday, with both the Sensex and Nifty indices plummeting over 1%. This sharp decline, attributed to a myriad of factors including soaring oil prices and a weakening rupee, resulted in a loss of nearly ₹9 lakh crore in market capitalization, bringing the total down to ₹460 lakh crore.
At 11:03 am, the Sensex dropped over 1,200 points, trading below the 76,400 mark, while Nifty fell more than 350 points, slipping under 23,850. The selloff was not limited to large-cap stocks, as small and mid-cap indices also witnessed declines. The Nifty Smallcap 100 index fell 0.5%, and the Nifty Midcap 100 index saw a more substantial drop of over 1%. Meanwhile, the India VIX, which gauges market volatility, surged approximately 5% to 18.29.
All sectoral indices on the National Stock Exchange (NSE) were in the red, with Nifty Realty and Nifty Auto leading the losses, each down by more than 1.6%. Other indices, including Nifty Metal, Nifty PSU Bank, and Nifty Private Bank, also reported declines of over 1%.
VK Vijayakumar, the Chief Investment Strategist at Geojit Investments, pointed to two major headwinds poised to affect the market in the coming days. Firstly, the price of Brent crude oil has surged to $120 per barrel, raising concerns about worsening economic conditions in India, particularly in terms of growth and inflation. Secondly, strong earnings reports from AI companies in the US and South Korea may exacerbate portfolio outflows from India, further impacting the market.
Several key global developments also contributed to the bearish sentiment:
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US Political Tensions: Former President Donald Trump warned that the US blockade of Iranian ports could persist for months as negotiations remain stalled. His remarks about the blockade being more effective than military action raised concerns among investors.
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Rising Oil Prices: Oil prices surged beyond $120 per barrel, marking the highest levels since Russia’s invasion of Ukraine in 2022. The increase followed new attacks near the Strait of Hormuz, which raised fears of supply disruptions.
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Federal Reserve Outlook: The US Federal Reserve maintained its policy rates but communicated a hawkish stance, suggesting that developments in the Middle East are contributing to uncertainty in the economic outlook.
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Rupee Weakness: The Indian rupee fell to an all-time low of 95.07 against the US dollar. Jateen Trivedi, VP Research Analyst at LKP Securities, indicated that high oil prices and sustained outflows from foreign institutional investors (FIIs) were exerting significant pressure on the currency.
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Global Market Trends: Broader global markets also reflected negative sentiment, with Japan’s Nikkei down over 1.2%, Hong Kong’s Hang Seng falling 1.3%, and South Korea’s Kospi declining around 0.5%. European markets posted deep losses as well, although Wall Street remained nearly flat.
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Continued FII Selling: Foreign investors have net sold Indian equities for six consecutive sessions, with a reported outflow of ₹2,469 crore on Wednesday. This trend is perceived to continuously dampen investor sentiment.
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Bond Yield Surge: US Treasury yields reached a one-month high following the Fed’s signals about rising inflation concerns, with the yield on benchmark 10-year notes climbing to 4.43%.
In addition to these factors, the release of exit polls indicated a potential electoral win for the Bharatiya Janata Party (BJP) in West Bengal, while incumbents were expected to retain power in other regions. Analysts noted that such exit polls could lead to short-term market volatility, although they typically have a limited long-term impact.
Overall, the combination of rising oil prices, a depreciating rupee, and global economic uncertainty created a challenging environment for investors, prompting a widespread selloff across Indian equities.
