The Indian stock market experienced significant volatility on Monday, with the benchmark Sensex plunging nearly 1,000 points from its intraday high amid a broad-based selloff. The Sensex opened at 81,926.99, up from the previous close of 81,688.45, and initially climbed nearly 450 points to reach a peak of 82,137.77.
However, the index subsequently erased all its gains, dropping 1028 points from this high to touch a low of 81,139.62. By around 12:50 PM, the Sensex was trading 543 points lower at 81,145.
The Nifty 50 also faced turbulence, opening at 25,084.10 against its previous close of 25,014.60. It recorded an intraday high of 25,143 before plummeting to a low of 24,798.65. The volatility index, India VIX, surged over 6% during the trading session, reflecting the heightened market uncertainty.
Here are the top 5 reasons behind Monday’s Market Fall
1. Increase in FII selling
Recent data from the National Securities Depository Limited (NSDL) reveals that foreign portfolio investors (FPIs) have offloaded Indian equities worth Rs 30,719 crore during the first four trading sessions of October. This significant capital flight appears to be shifting towards China, following the country’s recent economic support measures and favorable market conditions.
Analysts point out that the attractive valuations in the Chinese market stand in stark contrast to the premium valuations currently observed in the Indian market. The shift in investor sentiment has led to impressive gains in Chinese indices. Over the past week, the Shanghai Composite Index has surged 21%, while the Hang Seng Index has experienced a remarkable increase of over 15%.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented, “The massive FPI selling is the primary factor behind the market’s fall. FPIs have sold more than ₹40,000 crore in just four days. The Hang Seng index is up by 32% in one month. Big money is moving from India to China. This is abnormal. Markets tend to overreact. This is a ‘sell India and buy China’ trend. How long it will last remains to be seen.”
2. SEBI Guidelines add pressure
The Securities and Exchange Board of India (SEBI) has announced new regulations designed to tighten rules for equity derivatives trading, a move that is expected to raise entry barriers for investors and increase trading costs.
Key changes include a reduction in the number of weekly options contracts to one per exchange and a nearly threefold increase in the minimum trading amount. These measures aim to enhance market stability and investor protection in the derivatives segment.
3. BCA Research downgrades India’s rating to ‘Underperform’ from ‘Neutral’
In its latest report, BCA Research has expressed a pessimistic outlook for Indian stock prices, predicting a meaningful decline over the next six to nine months. The report indicates that Indian equities are expected to underperform the emerging market (EM) benchmark, leading to a downgrade of the Indian stock market from a neutral to an underweight position in EM and Emerging Asian equity portfolios.
BCA Research has also recommended a new tactical trade strategy: going long on Chinese stocks while shorting Indian stocks. The report cites several factors for this strategy, including expectations of further slowing profits in India as top-line growth decelerates and profit margins contract.
Furthermore, BCA highlights that the elevated valuations and overbought conditions in the Indian market render it particularly susceptible to even modest corporate profit disappointments.
4. Rising Crude Oil Prices
Crude oil prices have surged amid concerns over potential supply disruptions from the Middle East, raising significant implications for global markets, particularly for oil-importing countries like India. Brent crude futures traded at $77.73 per barrel, while US West Texas Intermediate (WTI) crude climbed to $74.21 per barrel.
The increase in crude prices is particularly alarming for India, as it significantly impacts the country’s import bill and adversely affects key sectors such as oil, gas, and energy. As a major importer of crude oil, any spike in prices could strain the Indian economy further.
5. Key Levels to Watch on Nifty & Bank Nifty
Commenting on the Technical outlook of Nifty Rupak De, Senior Technical Analyst at LKP Securities, said that The Nifty witnessed a bear attack for the second consecutive day. Sustained trades below key levels triggered a correction towards 25,000.
De also added that the sentiment has turned extremely weak, with higher levels being used as selling zones. On the lower end, the next support is seen at 24,750, while on the higher end, resistance is visible at 25,300.
Bank Nifty Outlook
“Bank Nifty is currently seeing major support at 51,000, and the overall risk-reward setup remains favorable for buying. Traders are advised to focus on buying on dips, particularly around the 51,300-51,400 zone, with a stop loss at 51,000 to manage risk effectively. On the upside, the immediate targets are 52,500 and 53,000, offering a strong opportunity for potential gains as the trend remains positive,” said Riyank Arora Technical Analyst at Mehta equities.
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