The Indian stock market witnessed a sharp crash on Thursday, with benchmark indices Sensex and Nifty 50 both opening significantly lower due to weak global cues, as escalating geopolitical tensions in the Middle East raised fears of a full-fledged Iran-Israel war. The market sentiment was further dampened by the recent regulatory changes introduced by SEBI for derivatives trading.
Sensex and Nifty 50 Plunges over 1.50%
The Sensex traded 1,361 points, or 1.62%, lower at 82,905.09, while the Nifty 50 dropped 413.95 points, or 1.60%, to trade at 25,382.95. Over the last four sessions, the Nifty 50 has fallen 3%, reflecting the ongoing market volatility.
Global Cues and SEBI Guidelines Add Pressure
The decline in the Indian stock market was fueled by a mix of global factors, including a sell-off in Asian markets and overnight losses in the US stock market. In addition to these, the new guidelines issued by the Securities and Exchange Board of India (SEBI) for equity derivatives trading further weighed on market sentiment, contributing to the sharp downturn.
Five Factors Behind the Crash
1. Escalating Israel-Iran Tensions
Geopolitical tensions in the Middle East reached new heights after Iran fired around 200 missiles at Israel on October 1 in response to the killing of Hezbollah leader Hassan Nasrallah. Israel, in turn, vowed to retaliate, further heightening fears of a broader conflict. Reports indicate that Israel has begun limited ground incursions into Lebanon, targeting Hezbollah militia. Additionally, Guardian reported that six people were killed and seven injured in an Israeli attack on a health center in Beirut, intensifying concerns about a full-scale war in the region.
2. SEBI’s Tightening of Derivatives Trading Rules
SEBI introduced new regulations aimed at tightening rules for equity derivatives trading, which is expected to raise the entry barrier for investors and make trading more expensive. Among the new guidelines, SEBI has reduced the number of weekly options contracts to one per exchange and increased the minimum trading amount by nearly three times.
According to Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, while these measures are intended to enhance market resilience, they may pose challenges for traders. “Stricter norms around leverage, transparency, and capital adequacy could limit investors’ ability to determine their own risk appetite, stifling innovation in trading strategies,” Sharma noted. He emphasized that over-regulation could reduce participation and hinder market dynamism, affecting India’s competitiveness in the global derivatives landscape.
3. Rising Crude Oil Prices
Crude oil prices surged due to fears of a potential disruption in supply from the Middle East, which could have significant implications for global markets, particularly for importers like India. Brent crude futures climbed 0.87% to $74.54 a barrel, while US West Texas Intermediate crude rose 1.03% to $70.82 a barrel. The rise in crude prices is especially concerning for India, as it contributes heavily to the country’s import bill and impacts sectors like oil, gas, and energy.
4. Continued FII Selling
Foreign institutional investors (FIIs) extended their selling spree in Indian equities, offloading Rs 5,579.35 crore worth of shares on October 1. In contrast, domestic institutional investors (DIIs) remained net buyers, purchasing equities worth Rs 4,609.55 crore, offering some support to the market amid the sell-off.
5. Key Levels to Watch on Nifty & Bank Nifty
Commenting on the Technical outlook of Nifty Kunal Kamble, Sr. Technical Research Analyst at Bonanza, said that The Nifty Index has closed negatively for three consecutive days, indicating a bearish trend. Since the rollover, the index has lost approximately 0.94% of its gains, with a 27.39% decrease in open interest, which suggests that many long positions are being squared off. However, 51.38% of long positions still remain open. Technically, the price is trading near the 0.618 Fibonacci retracement level, which coincides with the 20 EMA, signaling strong support at this level.
Kamble also added that on the options front, the 25800 PE holds the highest open interest with a selling bias, while the 26000 CE also has significant open interest, indicating expectations that the market will stay below 25800 as long as it trades below 26000. The weekly PCR is currently at 0.66, approaching oversold conditions. Based on this setup, short positions should be considered on rallies as long as the index trades below 26000.
Bank Nifty Outlook
“Bank Nifty is currently finding immediate support at 52,800, with a major support level below at 52,500. On the upside, immediate resistance is placed at 53,100, and a breakout above this level may push the index toward the next resistance at 53,500.The overall trend remains positive, with a favorable risk-reward setup for buying. Traders are advised to consider buying near 52,800, targeting 53,100 and 53,500, while maintaining a strict stop loss at 52,500 to manage risk effectively.,” said Riyank Arora Technical Analyst at Mehta equities.
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