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The Indian stock market experienced a significant sell-off on Monday, with benchmark indices tumbling nearly 1.5%, attributed to a confluence of factors including escalating geopolitical tensions in West Asia, concerns about fund movement towards China, and profit-taking after recent market highs. The decline was further exacerbated by mixed economic signals from the United States, with recent data showing a decline in the Federal Reserve’s preferred inflation gauge. Investors remained cautious ahead of Fed Chair Jerome Powell’s speech, seeking insights into future monetary policy amid weakening economic data.
Rising crude oil prices, fueled by the potential for conflict involving Iran, a key oil producer and OPEC member, added to the market's anxieties, as investors feared potential supply shortages. The Sensex, India's benchmark index, slid 1,272 points or 1.49% to close at 84,299, while the Nifty fell 1.41% to 25,810, ending near the day's low. This marked the worst day for both indices in nearly two months. Trading volumes on the National Stock Exchange (NSE) decreased by 32% compared to the previous session.
Among the top Nifty losers were Hero Motocorp, Axis Bank, Trent, Reliance Industries, and BEL, all of which experienced losses exceeding 3%. Most sectors closed in the red, with the Nifty Auto index being the biggest laggard. However, the media and metal sectors bucked the trend, ending the day in positive territory. Despite the downturn, the Nifty had gained nearly 2% for the month, driven by a rally in global markets after the US Fed cut interest rates by 50 basis points.
Global markets exhibited mixed performance at the start of the week. Tokyo's Nikkei 225 index plummeted nearly 5%, while Chinese markets surged on news of fresh stimulus measures to revitalize their faltering economy. European stock markets retreated as investors digested a series of local economic releases and the contrasting performance of major Asian indices.
Looking ahead, market participants will be keenly watching the Q2 earnings season for direction, alongside global cues. The market may consolidate after experiencing volatile movements in recent weeks. While the downturn has dampened sentiment, sectors like consumer durables and automobiles may witness increased demand during the upcoming festive season. However, rising inflation could potentially temper growth prospects. Key economic data releases in the coming weeks, including infrastructure output, current account balance, manufacturing PMI, and WPI inflation, will be closely monitored.
Furthermore, upcoming Reserve Bank of India (RBI) policy decisions could significantly influence market direction. Vikram Kasat, Head-Advisory at PL Capital, attributed the sharp decline primarily to profit booking after recent highs and heightened geopolitical tensions, which unsettled investor sentiment. He highlighted Reliance Industries' 3% fall as a significant contributor to the overall market decline.
On the technical front, Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, observed a long bear candle formed on the daily chart with a gap-down opening, indicating a short-term top reversal action for the Nifty, potentially leading to further weakness in the coming sessions. He suggested that the Nifty may find support at 25,500-25,400 levels, with immediate resistance at 26,000 levels.
The Indian Rupee depreciated on Monday, attributed to dollar outflows in the wake of foreign portfolio investor (FPI) selling in the equity market. The Indian unit closed at 83.7925 per dollar, compared to the previous close of 83.70. Market experts attributed this depreciation to foreign investors shifting their bets towards assets in China, following the announcement of monetary and fiscal stimulus measures by the Chinese government. This shift in investor sentiment pressured both the dollar and the Indian Rupee.
Amit Pabari, Managing Director of CR Forex Advisors, noted that the Rupee, after experiencing a period of appreciation, had begun drifting back toward its typical range. This shift was driven by month-end dollar demand from importers, coupled with the Reserve Bank of India's active management of the currency. The central bank's intervention on both sides of the Rupee's movement was evident.
Source: Indian equities tank amid rising tensions in West Asia, China stimulus