The Indian stock market witnessed a significant downturn recently, with both BSE Sensex and Nifty50 experiencing substantial declines. On Thursday, the Sensex fell by nearly 1%, losing almost 800 points intraday, while the Nifty dropped by 250 points. This marked the fourth consecutive day of losses for these indices. By the end of the trading session, the Sensex settled at 73,885.60, down 617 points or 0.83%, and the Nifty closed at 22,488.65, down 216 points or 0.95%.
Key Factors Contributing to the Decline
Major Stock Corrections
Heavyweight stocks such as Reliance Industries (RIL), Infosys, and Tata Consultancy Services (TCS) experienced corrections, which significantly impacted the overall market movement. The decline in these key stocks contributed to the broader market’s downturn, reflecting investor caution and profit booking at higher levels.
Election Uncertainty
With only one phase of polling remaining for the Lok Sabha elections, market jitters were palpable. Analysts predicted various scenarios, suggesting that a 10-15% market correction could occur if the election results were unfavorable for the incumbent NDA government. The uncertainty surrounding the election outcome heightened investor anxiety, leading to a cautious approach in the market.
Global Economic Concerns
Comments from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, indicated that further interest rate hikes were not off the table. His remarks about the restrictive stance of the US central bank’s policy led to an increase in US bond yields, which in turn contributed to the nervousness in global markets, including India. Mizuho Bank highlighted that persistent global inflation concerns were affecting asset markets, causing a negative sentiment among investors.
Market Reaction and F&O Expiry
The market’s downturn on Thursday was also influenced by the F&O (Futures and Options) monthly Nifty expiry, with traders squaring off their positions. Additionally, Indian markets took cues from their Asian counterparts, where major indices like Japan’s Nikkei 225, Hong Kong’s Hang Seng, and China’s Shanghai Composite also faced sharp declines.
Profit Booking and Recent Gains
Before this week, Indian stock indices had been on a rally, reaching new lifetime highs. Strong global market cues, hopes of Prime Minister Narendra Modi‘s re-election, and robust macroeconomic fundamentals had driven the market upwards. However, the recent decline was partly due to investors booking profits at higher levels to mitigate potential risks ahead of the election results.
Outlook and Future Trends
Despite the recent downturn, there were signs of recovery as Indian stocks opened on a firm note following five straight sessions of losses. On Friday, the Sensex and Nifty were up by 0.7% each. Analysts believe that market volatility will persist until the election results are out. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the market could experience sharp movements based on the exit poll results.
The recent decline in the Indian stock market can be attributed to a combination of domestic and global factors, including corrections in heavyweight stocks, election uncertainties, global economic concerns, and profit booking by investors. As the market awaits the outcome of the Lok Sabha elections, further movements will depend on various macroeconomic data and global market trends. Investors are advised to adopt a cautious and hedged approach to navigate the current volatility.
