The Indian stock market experienced a sharp decline today, with the Sensex dropping over 1,088 points from its intraday high and ultimately closing 638 points lower, reflecting a 0.78% drop. The Nifty 50, which opened at 25,084.10, also ended the session down 219 points, or 0.87%.
The pain was particularly felt in the mid-cap and small-cap sectors, which saw even steeper losses. This marks the sixth consecutive trading session of losses, with both Sensex and Nifty erasing earlier gains. The India VIX, which measures market volatility, surged by more than 6% during the day, signaling increasing investor uncertainty.
Top 3 Reasons Behind the Indian Stock Market Fall
Selloff by Foreign Portfolio Investors (FPIs)
The Sensex and Nifty 50 have been in a downward trend for six consecutive sessions, losing over 5% each. A significant factor driving this decline is the selloff by Foreign Portfolio Investors (FPIs).
Recent data from the National Securities Depository Limited (NSDL) shows that FPIs have pulled out ₹30,719 crore from Indian markets during the first four trading sessions of October. This capital shift seems to be directed toward China, which has recently implemented favourable economic policies, making it a more attractive investment destination.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “The heavy FPI selling is largely responsible for the current market weakness. In the past four days, FPIs have sold more than ₹40,000 crore. With the Hang Seng index surging 32% in the last month, a notable amount of capital is moving from India to China. This is an abnormal market reaction, but such ‘sell India, buy China’ trends may continue for an unknown duration.”
With China resuming trading post-holidays, concerns are rising over further foreign outflows from India.
New SEBI Guidelines Affecting Market Stability
On October 2, 2024, the Securities and Exchange Board of India (SEBI) announced new regulations aimed at tightening the framework governing equity derivatives trading. The market regulator revealed several guidelines, including an increase in the minimum contract size from ₹5-10 lakh to ₹15 lakh and limiting weekly expiries to one per exchange. These adjustments are intended to enhance market stability and improve investor protection.
However, the significant reduction in the number of available weekly options contracts may limit trading opportunities for investors. While these regulations are designed to safeguard the market, they have inadvertently created additional challenges for traders who must now adapt to increased costs and restrictions. The cumulative effect of these changes is contributing to the ongoing uncertainty in the Indian stock market, amplifying the current selling pressure.
Geopolitical Tensions and Rising Oil Prices
Tensions are escalating, particularly with the ongoing conflict between Israel and Iran, causing Brent crude oil prices to approach $80 per barrel. This increase raises concerns for India, a major oil importer, as higher crude prices will inflate the import bill and negatively impact key sectors like oil, gas, and energy. Such price hikes contribute to a challenging economic landscape, dampening market sentiment and increasing volatility. This situation adds further pressure on the economy, which is evident in the fluctuations seen in the stock market.
What are your thoughts on the recent market changes? Are you making any adjustments to your investment strategy?
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