Dalal Street crash: Investors lose Rs 7.3 lakh crore amid selloff; key reasons behind the slide

As the trading on Dalal Street resumed after a holiday on Wednesday, Indian benchmark indices continued to remain in the bear-grip. A combination of economic and geopolitical concerns sandwiched the equity markets and the domestic suffered another session of panic sell-off.

BSE's Sensex crashed about 523 points, or 0.81 per cent, to settle at 64,049.06 while NSE's Nifty50 tumbled about 160 points, or 0.83 per cent, to end the day at 19,122.15. Broader markets were also under pain as the BSE midcap index dropped about a per cent each. However, fear gauge India VIX spiked up about 4 per cent to 11.31-levels.

Investor sentiment is on edge as tensions in West Asia continue to drag the market. Despite a drop in oil prices and an optimistic view of the progressing Q2 results season, investors took a cautious approach due to the expectation that a higher interest rate scenario would continue slowing future growth, said Vinod Nair, Head of Research at Geojit Financial Services.

"However, a positive strategy is evident on large-cap stocks, amid growing geopolitical worries and valuation concerns in mid- and small-cap stocks, as overall earnings growth is being sustained, he said"

Investors lost a notional wealth of Rs 7.30 lakh crore from their kitty as the total market capitalization of all BSE listed companies crashed to Rs 309.22 lakh crore at close on Wednesday from Rs 316.52 crore on Monday, October 23. Here are the key factors that dragged the headline indices lower:

Geopolitical concerns
The rising intensity of conflict between Israel and Hamas is denting sentiments among traders and investors across the globe. Israel's military intensified its bombing of southern Gaza overnight after one of the deadliest days for Palestinians since the conflict began. However, Countries are pushing for a pause or ceasefire in fighting in the Gaza Strip on humanitarian grounds.

Rise in bond yield
The benchmark 10-year Treasury yield rose above 5 per cent on Monday and hovering around those levels led investors to expect interest rates to stay high for an extended period. "A rebound in the US 10-year bond yield which recouped sharply from a five-day low, and weakness in banking stocks has further dampened investor sentiments," said Arvinder Singh Nanda, Senior Vice President, Master Capital Services.

Higher Inflation rate
Markets are expecting that the interest rates across the globe are likely to remain higher for longer than expected. S&P Global's flash US Composite Purchasing Managers Index rose to its highest level since July, potentially giving the US Federal Reserve more room to keep interest rates high.

Global markets
European shares fell on Wednesday, weighed by declines in the luxury sector after downbeat sales from Kering, while investors also digested a slew of other mixed earnings reports amid worries about slowing growth in the euro zone. The pan-European STOXX 600 index (.STOXX) fell 0.3 per cent

Firm US dollar
The US dollar held firm on Wednesday, back near last week's close after a day of losses and then of gains, as it remained around 106-levels on Wednesday.  The British pound extended the previous day's losses on Wednesday after gloomy economic data affirmed the view that the Bank of England will likely hold rates steady when it announces its policy decision next week. Sterling was also struggling against the greenback.

High oil prices
Oil benchmark Brent held above $88 on Wednesday as concerns about war escalating in the Middle East offset demand worries stemming from gloomy economic prospects in Europe. Brent crude futures were up 11 cents to $88.18 a barrel at 0948 GMT, while US West Texas Intermediate crude futures slipped 5 cents to $83.69 a barrel, report Reuters.

Technical View
Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities said that the Nifty has breached the important support level of 19,200 and has also formed a bearish candle on daily charts, which is largely negative due to weak sentiments.

"For day traders, 19,050 would act as a trend decider level, above which we could see a one quick pullback rally till 19,200-19,250. On the flip side, fresh selloff is possible only after the dismissal of 19,050 and below the same, the market could slip till 19,000-18,930" he added.

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