Sensex tanks 820 points, Nifty tumbles: 4 factors behind stock market bloodbath

After opening in green, the S&P BSE Sensex reversed course, dragged down by banking, financial services, and auto stocks. The Nifty50, too, faced a broad-based decline, with nearly all sectoral indices closing in the red except for Nifty Realty.

In Short

• Global headwinds, weak earnings trigger sharp stock market selloff
• FII outflows and strong dollar add pressure on equities
• Banking, financial services stocks among top market losers today

Benchmark stock market indices witnessed a sharp selloff on Tuesday, with the Sensex plunging over 800 points and the Nifty50 tumbling over 250 points. At the closing bell, the Sensex was down 820.97 points to 78,675.18, while the NSE Nifty50 fell 257.85 points to settle below the crucial 24,000 mark.

This marked a continuation of the downward trend seen in the last few days, spurred by a mix of weak domestic earnings, global concerns, and significant foreign outflows.

After opening in green, the S&P BSE Sensex reversed course, dragged down by banking, financial services, and auto stocks. The Nifty50, too, faced a broad-based decline, with nearly all sectoral indices closing in the red except for Nifty Realty.

Top losers included Britannia, BEL, NTPC, Asian Paints, and SBI, while Trent, Infosys, Sun Pharma, and HCLTech were among the few stocks that managed gains. The majority of Nifty50 stocks — 46 out of 50 — ended the session in negative territory.

Ajit Mishra – SVP, Research, Religare Broking Ltd, said, "The markets remained under pressure, shedding over a percent, extending the ongoing correction phase. Despite an initial uptick, Nifty witnessed sharp swings in the first half before selling pressure in heavyweight stocks shifted the momentum downward. Most sectors, including auto, FMCG, and metal, faced losses in line with the benchmark indices. Broader indices were not spared either, losing nearly 1.5% each."

DECODING STOCK MARKET BLOODBATH

Global factors are playing a significant role in this downturn, with the strengthening U.S. dollar and fears surrounding US President-elect Donald Trump’s potential trade policies impacting investor sentiment.

Concerns over the implications of Trump’s agenda have driven up the dollar index, and the rupee fell to a fresh low earlier today. According to analysts, this dollar strength has renewed fears of further foreign outflows, putting additional pressure on Indian equities.

"Intense selling across FIIs can be attributed to a weak earnings season, an overvalued Indian equity market, and the flow of foreign capital into other markets, including China, Japan, and Taiwan,” noted JM Financial in a report, adding that foreign portfolio investor (FPI) outflows have historically led to sharp corrections in Indian markets.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the impact of relentless FPI selling on the market. "The intensity of FII selling has been favoring the bears and pulling the market down,” he said.

However, Vijayakumar noted that while FII selling may be cooling (with Rs 2,026 crore inflows reported on Monday), domestic institutional investors (DIIs) are stepping up with buying, supported by steady inflows into mutual funds.

Vinod Nair, Head of Research, Geojit Financial Services also noted that FII-triggered selling pressure continued to impact the domestic market.

"The recent strengthening of the dollar, driven by aggressive ‘Trumponomics’ is adding fears. Additionally, the anticipated rise in domestic inflation, due to increasing food prices, along with depreciating INR, may influence the RBI’s monetary policy. Most sectors were in the red, while IT stocks gained on expectations of increased US IT spending," h added.

The Federal Reserve’s recent 25 basis points rate cut in November has also weighed on markets, signalling a more accommodative stance that could impact investor behaviour. "This monetary policy adjustment signals a more accommodative approach, driving increased interest in assets like Bitcoin as inflationary concerns ease," said Kyle Rodda, a senior financial markets analyst at Capital.com.

The domestic earnings season has not offered much relief either, with weak corporate results contributing to a cautious outlook for Indian equities.

On a technical note, Mishra noted that Nifty has now "edged closer to its previous swing low, around 23800, with banking heavyweights leading the decline and dampening hopes of a recovery once again".

"Current signals suggest a potential test of the long-term moving average at the 200 DEMA level, around 23,540. Participants should adjust their positions accordingly and prioritise selective stock picking," he added.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)