Stock market carnage: Sensex falls 2,750 pts in 3 days, investors lose Rs 13.2 lakh crore; key factors

Domestic equity markets extended their fall for the third straight session on Thursday as the headline indices another per cent early in the session. A host of domestic and global factors are weighing on the sentiments on Dalal Street ahead of the weekly expiry of the F&O contracts of Nifty50 index.

BSE's barometer Sensex dropped more than 835 on Thursday to slip down to 70,665.50 early in the morning. The 30-share pack has crashed over 2,760 points from its 52-week highs at 73427.59, hit on Tuesday, January 16. Similarly, NSE's Nifty50 index has declined over 285 points to 21,285.55 during the day, taking the three-day fall close to 840 points since Tuesday.

Investors lost a notional wealth of Rs 13.2 lakh crore as the total market capitalization of the BSE-listed companies dropped to Rs 367.03 lakh crore on Thursday compared to its close at Rs 380.23 lakh crore on Tuesday. Even the fear gauge India VIX is hovering around 15-levels. Here are key reasons that are denting market sentiments at Dalal Street:

Hawkish Central Banks
Global traders are anticipating a delayed rate cut by the US Federal Reserve after upbeat economic data. According to the Reuters, markets are pricing in a 66.9 per cent chance of a rate cut of at least 25 basis points (bps) in March from the Fed, compared with an 81 per cent view in the prior session. The hawkish tone of the US Fed officials is also weighing on the sentiments.

Fall in global markets
Global shares have remained muted, on the backfoot, weighed down by a murky economic outlook in China and expectations the global rate easing cycle may not come as early as some had initially thought. US Treasury yields edged higher as investors pared their bets on a rate cut by the Federal Reserve beginning as early as March.

Rise in the dollar index
The dollar index hit a fresh one-month high on Wednesday and remained around it on Thursday after the US retail sales data signaled economic strength, dimming expectations for imminent rate cuts from the Federal Reserve. Even the European Central Bank (ECB) officials pushed back against rate cut expectations in the eurozone, denting the buoyancy in equity further.

Geopolitical concerns
The US military said its forces conducted strikes on 14 Houthi missiles that were loaded to be fired from Yemen, in the fourth day of US strikes in less than a week, increasing tensions in the Red Sea. Attacks by the Iran-allied Houthi militia on ships in the region since November have slowed trade between Asia and Europe and alarmed major powers.

Growing concern that heightened geopolitical tension could damage the global economy. The Chief Economists Outlook released by the World Economic Forum (WEF) said about 70 per cent of the economists reckon the pace of geo-economic fragmentation will accelerate this year.

Flop show by India Inc
India Inc's numbers as of now have been majorly a disappointment for investors. A series of flop shows by blue-chips like HDFC, ICICI Prudential Life Insurance and LTIMindTree is weighing on the mood of the market. These stocks have been hammered hard as a punishment after dull earnings.

There are a number of factors that triggered this fall. The most important one is the HDFC Bank quarterly result which disappointed the market. The pressure on net interest income is visible due to less growth in deposits. The average growth of deposits was too low compared to the guidance, said Mukesh Kochar, National Head of Wealth at AUM Capital.

"The dollar index again started inching up and the US yield increased by around 10 bps due to the comment of the Federal Reserve governor on being cautious about early rate reduction which the market is expecting in March to happen. Chinese GDP continues to suffer and has delivered a lower growth rate again," he said.

FII selling
Provisional data available with NSE suggest that FPIs turned net sellers of domestic stocks to the tune of Rs 10,578.13 crore on Wednesday. Even in the derivative markets, FIIs decreased their future index long position holdings by 20.43 per cent, increased future index shorts by 28.07 per cent and in index options by 27.50 per cent decrease in call longs and 1.42 per cent increase in Put shorts, said data from Geojit Financial Services.

The FPI sales figures in India yesterday were huge at Rs 10578 crores. In the context of rising bond yields in the US, FPIs may sell again. But this is likely to be countered by DII buying in fairly valued large caps with growth potential, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Valuation comfort
In the year 2023, Nifty50 index surged about 20 per cent as Indian markets emerged as one of the top-performing equity markets. On the other hadm, midcap and smallcap indices outperformed the largecap peers and were up  47 per cent and 56 per cent, respectively for the year, pushing the valuations discomfort as the potential of further upside appeared bleak.

Premium valuation in the mid and smallcap segments, any adverse union election results and rising geo-political issues are the key near-term risks to the Indian markets, said Vinay Paharia,CIO,PGIM India Mutual Fund. "Post  the sharp runup in markets, we are cautious on the near-term return potential of the equity markets, while remaining optimistic in the medium-to-long term," he said.

Technical Setup
Technical analysis suggests Nifty's support at 21,407 and hurdles at 21,807, while options data indicate a potential 21,100-22,000 trading range. Six negative catalysts, including banking stock caution and global uncertainties, weigh on market sentiment, said Prashanth Tapse, Senior VP (Research), Mehta Equities.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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