Stock market meltdown: Why Sensex tanked over 900 points today

Stock market meltdown today: The BSE Sensex shed 930.55 points to end at 80,220.72 and the Nifty closed down 309 points at 24,472.10. It erased the market capitalisation of BSE by more than Rs 9 lakh crore and gave a big jolt to investors across the globe.

Stock Market Meltdown Today

Indian equities ended lower on Tuesday dragging benchmark equity indices such as the S&P BSE Sensex by more than 900 points and the NSE NifTV50 below 24,500.

The BSE Sensex ended 930.55 points down at 80,220.72 and the Nifty tumbled by 309 points to 24,472.10 at the end of the head wagging session. This cut decimated everything to the tune of over Rs 9 lakh crore in the BSE’s market capitalisation and left many investors shocked.

Well, what was it then that brought this Stock market meltdown? Here are the key factors at play:

PROFIT BOOKING In This Stock Market Meltdown

Well, after Monday’s and Tuesday’s run in the past weeks, investors probably thought it was high time to cash in some of their gains. Investors said that the signs of a slow growth economy is a clear indicator that was worrying analysts. Earlier India has been known as buy-on-dip market; but this high valuation was the much needed correction pull out the Indian market. Even in markets, repositioning occurs, which means that monthly valuations are moved back towards their long-term averages.

FII SELLING In The Stock Market Meltdown

So far this month, FIIs have been in selling mode, and this has set the record straight on share selling. NSS account holders have sought to sell as much as Rs 88,244 crore of share till October 21, NSDL data show. Only the day before, FIIs begun selling Rs 2,261.83 crore of shares and DIIs on the other hand, started making purchases by buying Rs 3,225.91 crore worth of shares. This dynamic can be better described as a seesaw between global and national investors in the stock market in this stock market meltdown.

Further, there has been no signs of FIIs buying equities locally in the current month which has been dawning negativity among the domestic players said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd. Also, Indian equities are eroding glamour from foreign investors seeking more attractive returns in comparatively cheaper locations , such as China, more so following the recent stimulus pronouncements by the latter’s government to its slowing economy.

‘Mid and small-cap dominated the benchmark fall as sustained buy pressure had made equities in many stocks overbought and that explaining the correction of stock market meltdown’.

BEARISH GLOBAL SENTIMENT

The stock market meltdown did not take place only in India but touched other parts of Asia too with a bearish outlook taking hold. Japan’s Nikkei shed 1.39%, South Korea’s Kospi index slid 1.31%. The Heal RBIs Head of Research at Geojit Financial Services, Vinod Nair said that higher benchmark US bond yields have been negative for emerging markets, including India, by partly ruling out deep rate cuts by the Federal Reserve.

Concerns over global economy forced bearish tone on the domestic market who witnessed a volatile day today which had unfavorably impacted small and midcap stocks. The emergence of a modern sharp increase in US bond yields, which accompanied downward expectations for aggressive rate cuts by the US Fed, also affected fund flows to EMs. This bearish outlook may be sustained in the short term because of the lacklustre earnings growth trends,” Mr Nair said.

SECTORAL PERFORMANCE

Each industry was dragged lower today in the stock market meltdown, led by blue chips Reliance Industries, HDFC Bank and Tata Consultancy Services. Mid and small-cap segments which had a massive selling trailed behind with 2.61% to 3.92% decline on average. This continuous pattern of lower higher lows depicted a consolidation of bears on the market. The Nifty shed 309 points and ahead of closing at 24,472.10.

Ordinarily, one would expect to see the index perhaps post a short term rally given some oversold conditions in the mid and small cap space. Nonetheless, the upside seems limited where sellers are expected to push the BTC/USD towards the next resistance level of 24,670; the support levels range between 24,370 and 24,430.

Ajit Mishra, SVP, Research, Religare Broking Ltd stated that, Consolidated markets, only traded lower than 0.85 percent down in an ongoing correctional mode. Further it made a consolidated beginning and then started coming down and touched near an important support level at 100 DEM Alt. There was selling across the board and issues related to realty, metal, and auto space were hit immensely. Consequentially, the midcap and smallcap was dramatic, erasing between 2.75% to 3.65% of their paper wealth.

This week Nifty has dipped by almost 7% off its record high and has touched the crucial moving average support known as 100 DEMA, 24,485. Such a situation indicates further weakness and more pain in the midcap and smallcap camps, he added. “On the index front the next substantial support level is at 24,000 the resistance can be seen at 24,700-25000 in the case of a bounce back.” We therefore suggest that trades should be modified and we do not endorse the accumulation of more losing trades”.

Will stock market meltdown volatility persist?

The wild swings seen in the traded markets over the current day are a good reminder of the unpredictability that characterizes equity investment. While investors continue to process this downturn, expectations for the next steps will rise with pending economic indicators as well as results of corporate business reports. The RBI has projected that the GDP growth rate will be 7.2 percent in FY 25 which implies that the current phase may be temporary; there may be a possibility of revival of the sentiments in the market when the future comes.

The stock market meltdown might seem today to be at its lowest it has been for quite a while, but that could actually be expected from a cyclical market. Sustainable investment decisions and patience may lead the investors to search for possibilities even though they face instabilities.

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