Indian benchmark equity indices closed sharply lower on Monday, with the Sensex tumbling more than 1,250 points and the Nifty50 finishing below the 25,850 mark. The decline was led by profit booking in heavyweight stocks, including Reliance Industries, IT, and banking shares.
The market capitalisation of all listed companies on the BSE fell by Rs 3.55 lakh crore to Rs 474.38 lakh crore. Reliance Industries, ICICI Bank, HDFC Bank, and Axis Bank together accounted for 730 points of the Sensex's decline, with Bharti Airtel, Mahindra & Mahindra, SBI, TCS, Infosys, and Tata Motors also contributing to the slump.
On the sectoral front, Nifty Bank, Auto, Financial Services, Pharma, PSU Bank closed 1-2% lower. Meanwhile, the fear gauge India VIX jumped 6.9% to 12.8.
However, Nifty Metal bucked the trend, gaining 1.3% as investors welcomed measures announced by the Chinese government to boost its slowing economy. Stocks like NMDC, APL Apollo Tubes, Welspun Corp., and JSW Steel were among the top gainers in the index.
Here are key factors that led to today's fall :
1) FII shift to chinese markets
Foreign Institutional Investors (FIIs) have increasingly turned their focus towards Chinese markets following a series of stimulus measures introduced by the Chinese government.
China's blue-chip CSI300 index surged by 3%, while the Shanghai Composite Index rose by 4.4%, building on last week's 13% rally. Additionally, China's central bank announced a reduction in mortgage rates for existing home loans, further boosting investor confidence.
"Markets are likely entering a consolidation phase in the near term. One key factor influencing foreign portfolios is the outperformance of Chinese stocks, reflected in the Hang Seng index's roughly 18% surge in September," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
2) Geopolitical tensions escalating in the Middle East
Geopolitical uncertainties, particularly the escalation of Israeli strikes across Lebanon, have added to global market jitters. While crude oil prices have remained relatively stable due to potential increases in supply, concerns over energy security have risen.
Brent crude futures gained 0.71%, while US West Texas Intermediate increased by 0.63%, further weighing on Indian equities, given the country's dependence on oil imports.
3) Nervousness ahead of key US data and Powell's speech
Investors are anxiously awaiting a series of key US events this week, starting with Federal Reserve Chair Jerome Powell's speech. A range of Fed officials are scheduled to speak, and markets are closely watching for signals about the direction of US monetary policy.
Key economic data points, including job openings, private hiring numbers, and ISM surveys on manufacturing and services, are due later in the week. The US payrolls report, expected at the end of the week, could also influence whether the Fed opts for a significant interest rate cut in November.
Futures suggest a 53% chance that the Federal Reserve will implement a 50-basis-point rate cut on November 7.
4) Pressure from Japan's potential interest rate hike
Markets also faced pressure after Japan's ruling Liberal Democrats selected former Defence Minister Shigeru Ishiba to succeed Prime Minister Fumio Kishida. Ishiba, expected to take office on Tuesday, has expressed support for the Bank of Japan's potential moves to raise interest rates from near-zero levels.
Ishiba also supports possible corporate tax hikes, policies that are seen as less market-friendly compared to those of his rival, Economic Security Minister Sanae Takaichi. When the Bank of Japan last raised interest rates in August, global markets saw sharp declines, with the Nikkei 225 index plunging 12.4%, its worst performance since 1987. US markets fell around 3% in response to the surprise rate hike.
5) FIIs turn net sellers
Foreign Institutional Investors (FIIs) turned net sellers on Monday, offloading ₹1,209 crore worth of equities. However, FIIs have remained net buyers in September, with total inflows exceeding ₹57,000 crore for the month.
"FIIs may continue to sell in India and shift more money to better-performing markets, but this selling is unlikely to have a significant impact on the Indian market. Domestic investors are well-positioned to absorb the outflows," said Vijayakumar.
Despite the sharp sell-off, analysts expect the market to consolidate in the near term, with sectors like metals continuing to perform well. However, global factors, including geopolitical risks and key economic data from the US, will continue to weigh on investor sentiment in the coming days.
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