Panic grips Dalal Street: 4 factors behind today's stock market crash

Stock market today: Both benchmark indices fell as much as 2%, leading to massive losses for investors. At 12:57 pm, the S&P BSE Sensex was down 1,303.19 points at 78,420.93, while the NSE Nifty50 tanked 437.15 points to trade at 23,867.20.

In Short

• Stock market declines as Nifty and Sensex drop significantly
• Heavy selling by FIIs drives downward pressure on stocks
• Investors book profits ahead of upcoming US elections

The stock market witnessed a significant decline on Monday, with both the Nifty and Sensex resuming their downward trajectory after a week of relative stability.

Both benchmark indices fell as much as 2%, leading to massive losses for investors. At 12:57 pm, the S&P BSE Sensex was down 1,303.19 points at 78,420.93, while the NSE Nifty50 tanked 437.15 points to trade at 23,867.20.

Most of the other broader market indices also declined sharply during the session as volatility spiked sharply. Smallcap and midcap stocks also declined significantly, signalling the broad-based panic selling on Dalal Street.

The sharp downturn has raised concerns among investors, with three primary factors contributing to the market's current state.

Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services Ltd, said, "Dalal Street continued its sharp decline as key indices Nifty50 and Sensex fell nearly 2% to begin the week on a weaker note. Nifty prices have now dropped nearly 9.5% from their all-time highs, hitting a five-month low on heavy sell-offs from FIIs which offloaded around 114,445 crore in the cash segment. Investor sentiment has also been strained by weak quarterly earnings and geopolitical uncertainties."

FII SELLING BATTERS SENTIMENT

The stock market has been significantly impacted by heavy selling activity from foreign institutional investors. As they look to shift their investments, the expectation of a stimulus package from China has prompted many FIIs to move their funds away from India.

This shift has fuelled concerns about capital outflows, which tend to put downward pressure on stock prices.

Santosh Meena, Head of Research, Swastika Investmart Ltd, said, “Nifty and Sensex have resumed their downward trend after a week of consolidation, largely due to heavy selling by FIIs.”

“The expectation of another stimulus package from China is driving fund outflows from India to China, while FIIs are also booking profits ahead of the significant upcoming US elections,” Meena added.

PROFIT BOOKING AHEAD OF US ELECTIONS

Ahead of the US presidential elections, many investors are opting to book profits ahead of potential market volatility associated with the elections.

The profit-booking behavior has added to the downward pressure on the domestic markets, as FIIs recalibrate their portfolios in anticipation of the outcomes and implications of these elections.

Upadhyay noted that today's sell-off was driven by several factors, including the US presidential election on November 5, the Federal Reserve’s upcoming monetary policy announcement on November 7, and recent disappointing US nonfarm payrolls data. "Concerns about a potential delay in the US election results have further fueled anxiety among investors," he added.

DOMESTIC INVESTORS CAUTIOUS

Domestic institutional investors appear to be taking a cautious stance amid these global uncertainties. With FIIs driving the selling momentum, DIIs are reportedly holding back, contributing to the lack of buying support in the market. Their absence during this critical phase further exacerbates the downward trend.

“DIIs appear to be on the sidelines amid these major global events,” said Santosh Meena.

He noted that both Nifty and Sensex are approaching their 200-DMAs, around 23,500 and 77,000, respectively, where a temporary bottom may form.

“Bank Nifty is showing relative resilience, supported by attractive valuations. Amid the current market pullback, investors are encouraged to focus on stocks with reasonable valuations and strong earnings momentum,” he added.

"Technically, the market remains well below its 100-day EMA, adding to the bearish outlook. This week will be critical and a hold above 23,500 could indicate bargain buying, while a sustained move above 24,500 may trigger short covering, signalling a possible end to the downtrend. Conversely, a decisive break below the 23,500–23,400 range could push prices further down toward 22,800," Upadhyay said.

WEAK Q2 EARNINGS

Major company stocks are also experiencing significant downgrades in earnings forecasts, which is affecting investor sentiment. BPCL saw the steepest cut in its FY25 EPS projections, with a 34.3% downgrade following its Q2 results. Other notable downgrades came from IndusInd Bank, UltraTech Cement, and Coal India.

Analysts at Motilal Oswal Financial Services (MOFSL) noted that while 34 Nifty stocks recorded a modest 5% growth in sales for Q2, EBITDA growth was limited to just 1%, and net profit growth stagnated. Concerns over domestic earnings have been amplified by the weaker Q2 performance, with many companies falling short of PAT and EBITDA estimates.

“The Indian market is encountering challenges due to slowing earnings growth. Based on Q2 results, Nifty's FY25 EPS growth may fall below 10%, which makes the current valuations of 24 times estimated FY25 earnings hard to justify. FPIs might continue their selling spree in this tough earnings environment, which could limit any potential market rally,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

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