Sensex plunges 1,200 pts from day's high, Nifty below 22,400. 4 factors behind Rs 10 lakh crore wipeout

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ETMarkets.com

Sensex tumbled over 700 points to trade below 72,600, down more than 1,200 pts day's high, while Nifty 50 plunged over 250 points to drop below 22,400. The sharp drop wiped off nearly Rs 10 lakh crore from the total market capitalisation of all companies listed on BSE, pulling it down below Rs 4.49 lakh crore.

Tata Steel, Adani Ports, BEL, Titan, NTPC, IndiGo, Bajaj Finserv, Trent, HUL, SBI, Maruti Suzuki and M&M shares fell around 2-4% each to lead losses on Sensex. UltraTech Cement, Power Grid, Tech Mahindra and Kotak Mahindra Bank shares followed, dropping over 1% each.

Broader markets crashed sharply, with Nifty Smallcap 100 index plunging around 4% while Nifty Midcap 100 index tumbled around 3%. Among the sectors, Nifty Metal, Nifty Realty and Nifty Consumer Durables dropped over 3% each while Nifty PSU Bank index was down over 2%. Only Nifty IT was trading in the green with marginal gains.

The overall market breadth strongly favoured the bears, with NSE seeing 3,081 declines against 297 advances, while 77 stocks remained unchanged.

Here are the key factors pushing the market down today.

1) Oil prices

Oil prices jumped to $114 per barrel as Houthi attacks on top exporter Saudi Arabia raised concerns over further disruptions to energy supplies. Saudi Aramco ordered the evacuation of its headquarters in Dhahran, on the Gulf near Bahrain, as fighting intensified between the world's largest crude exporter and Yemen-based Houthis. Clashes between the Iran-aligned Houthis and a Saudi-led coalition supporting Yemen's internationally recognised government have continued as the group advanced towards Bab el-Mandeb, a shipping chokepoint at the entrance to the Red Sea.

The New York Times reported that the US and Israeli militaries have drawn up specific plans for renewed strikes against Iran after the American midterm elections, citing US officials and others briefed on the discussions. The boiling oil prices following brief consolidation is spooking investors on Dalal Street.

2) FII selling resumes

Foreign investors remained net sellers of Indian equities on Thursday, net selling shares worth nearly Rs 3,459 crore. This comes after FIIs net bought Rs 1,407 crore Indian equities on Wednesday, before selling more than double that amount in the next day.

FIIs have remained net sellers of Indian equities in 11 out of 14 sessions in October so far. Overall, the selloff intensified since last month, following a brief trend reversal.

3) Broader markets bleed

A noticeable trend in the stock market on Friday was the significant underperformance of the broader markets in comparison to the large-cap Sensex and Nifty. While Sensex and Nifty have dropped up to 1%, Nifty Smallcap 100 index plunged 4% while Nifty Midcap 100 index crashed 3%.

“The sharp correction in the broader market, particularly in small-caps, might continue since their valuations, driven up by liquidity rather than fundamentals, are hard to justify. Fairly-valued large-caps, particularly those which are growing well, present value buying opportunities for patient investors,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

4) Fed rate hike expectations

Metals, realty and other rate sensitive sectors led losses today in the market amid rising expectations of a rate hike by the US Federal Reserve. Soaring oil prices reinforced expectations that the Fed will keep interest rates elevated for longer.

Investors are now closely eyeing Fed's October 27-28 policy meeting and next week's Personal Consumption Expenditures (PCE) data, the central bank's preferred measure of inflation as it targets a 2% rate. Traders largely expect the Fed to leave interest rates unchanged next week, while the probability of a rate hike in December remains at 80%.

Can Dalal Street rebound?

Brent crude spiking to $114 is a major negative for the economy and markets, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. However, there are strong positives that can counter this negative, he said.

“The sharp decline in the US 10-year yield to 4.96 % and the appreciation in the rupee to 94.70 to the dollar are positives that can restrain FII selling significantly. More importantly, more than Rs 3 lakh of the IPO money will come back into the system after the allotment is completed by next Monday. This potential liquidity surge can lift the market next week. The market can move higher anticipating this in advance,” the analyst said. It is important to understand that the rally, if it happens, will be led by the large-caps which are signalling resilience, Vijayakumar added.

Technical view on Nifty

For Nifty today, holding the gap-up and sustaining 22,800 resistance may ignite a short-covering rally to 23,000, said Hemang Gor, Senior Research Analyst- Derivatives and Technical Research, Axis Direct.

He sees the benchmark index finding critical support at 22,500. Notably, Nifty has comfortably fallen past this critical support level, intensifying the selloff.