The markets have given up yesterday’s optimism and after a steady start, the indices saw a sharp dive down. The Sensex has now plunged over 1,100 points in afternoon trade, and the Nifty has fallen below the crucial 24,000 mark. The BSE Small Cap is down 2% and even the key midcap indices are down sharply. The auto stocks are bearing the brunt of the sell-off today. The Nifty Auto Index is down close to 3% intraday.
According to market veteran Deepak Jasani, “Yesterday’s optimism has faded to a large extent. Crude oil is up nearly 2% intra-day today. The market is weighing the current situation in the Middle East and is apprehensive about any possibility of the war ending anytime soon. The trigger for the rally yesterday seems somewhat overextended by the market in the morning. Also, FIIs seem to be selling on every rise, rather than bottom fishing.”
3 reasons why the market is falling today –
Here is a detailed analysis of the key triggers that have resulted in the sharp fall in the markets in afternoon trade –
#1 Crude oil prices jump 2% intra-day
After a brief lull and the biggest 1-day fall, crude prices have again started their upward trajectory. The ANI report quoted UK Maritime Organisation and stated that an unidentified cargo vessel was hit by an unknown projectile in the Strait of Hormuz. This has resulted in a fire onboard and definitely triggered investor apprehension.
Though crude is still below the $90/bbl mark, it is up 2% in the intra-day session on Wednesday. Prices saw wild swings and investors weighed good news and market apprehension.
On the one hand, the IEA’s proposed drawdown would exceed the 182 million barrels that was released in two tranches in 2022 when Russia launched its full-scale invasion of Ukraine. Reuters quoted Goldman Sachs analysts, who shared in a note to clients that “a stockpile release of that size would offset 12 days of the estimated 15.4 million barrel-per-day Gulf exports disruption.”
But on the other hand, the US and Israel pounded Iran on Tuesday in one of the most intense airstrikes of the war. Reuters quoted the US military as eliminating 16 Iranian mine-laying vessels near the Strait of Hormuz.
#2 European markets open lower
What further exacerbated the negative sentiment is the European markets opening in the red. The unknown cargo vessel being hit in the Strait of Hormuz made investors jittery across Europe. The key equity markets from UK, France and Germany are all in the red and have been trending lower. This added to the global uncertainty.
#3 FII selling continues
The last 3 sessions have seen renewed FII selling after a few days of buying. So far, FIIs have net sold equities worth Rs 32,849 crore in March.
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments, pointed out the “There are some important market trends that investors should analyse and try to understand now. One, the FII vs DII game is back to the last one-year pattern of sustained selling by FIIs being more than matched by sustained buying by DIIs. Given the continuing indifference of FIIs towards India and the sustaining inflows into Indian equity mutual funds, this game is likely to continue in the near-term.”
Conclusion
Overall the market is displaying a cautious stance. Investors are risk-off given the continued tension across West Asia and the resulting global headwinds.