The Indian stock market started September on a weak note, but the selloff this morning was far sharper than anticipated. In the intraday trade, the Sensex tumbled more than 800 points to hit an intraday low of 76,135. The Nifty also fell more than 250 points to 23,787.
Apart from this, the BSE MidCap and SmallCap indices also dropped more than 1%.
Why is the market falling today? Let’s take a look at the key reasons driving the selling pressure today –
Crude oil jumps towards $96
Oil has suddenly become a major concern for Indian investors. Brent crude prices moved towards $96 a barrel after rising more than 2% in early Asian trade. The increase came as fresh military action between the US and Iran raised fears of disruption to oil supplies.
India imports around 85-90% of its crude oil requirements. A sustained rise in oil prices can therefore increase the country’s import bill and put pressure on inflation, the fiscal position and the rupee.
The Strait of Hormuz is at the centre of the concern. The route handles around one-fifth of global energy supplies.
US-Iran conflict escalates
The second trigger is geopolitical. Washington carried out strikes on military targets in Iran, while Tehran retaliated. Iran’s Revolutionary Guards Corps said it had targeted US military bases in Jordan, Bahrain and Kuwait.
The fresh attacks have increased fears that the West Asia conflict could become longer and more disruptive.
Rising US bond yields add pressure
There is another risk sitting outside the battlefield – US government bond yields. Higher US yields can make dollar assets more attractive. That can put pressure on emerging markets such as India and make foreign investors more cautious about equities.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said, “The big threat is the rising bond yields in the U.S. The macro construct in the US indicates further hardening of the bond yields. If the 10-year yield touches 5% that has the potential to trigger a big correction in equity markets globally. Therefore, this is the macro indicator to watch closely. The near-term market trend will depend on which of these forces -the tailwinds or headwinds- will emerge stronger,”
He also said, “The market is delicately poised between domestic tailwinds and external headwinds. The domestic tailwinds from impressive Q1 GDP numbers, excellent high frequency data from GST collections, credit growth and automobile numbers and improving prospects for earnings growth are big positives for the market.”
“Unfortunately, the headwinds also are equally strong. The escalation of the US-Iran conflict and the consequent 5% spurt in Brent crude overnight to $96 is a sentiment negative. However, this is not a big threat since our CAD is running at only 0.5% and forex reserves are ample at $730 billion,” added Vijayakumar.
Auto stocks lead the decline
The selloff was particularly sharp in auto stocks. The NSE auto index plunged more than 3% after August sales numbers from several automobile companies failed to meet market expectations.
Realty stocks were also under pressure, with the Nifty Realty index falling around 2%. All the major NSE sectoral indices were trading in the red, with information technology down more than 1.5% and fast-moving consumer goods close to 1%.
Bank, consumer durables stocks declined around 1% or more. Meanwhile, the India VIX, a measure of market volatility, rose 3.6%.