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The Indian stock market experienced a significant downturn on Tuesday, with the benchmark indices, S&P BSE Sensex and NSE Nifty50, suffering a sharp decline. The Sensex plummeted by over 900 points, closing at 80,220.72, while the Nifty fell by 309 points, settling at 24,472.10. This dramatic fall resulted in a staggering loss of nearly Rs 9 lakh crore in the BSE's market capitalization, leaving many investors concerned.
Several factors contributed to this market meltdown. One key factor was profit booking. After a period of strong performance in recent weeks, investors decided to take profits off the table. Analysts pointed to the signs of a potential economic slowdown, which weighed heavily on investor sentiment. While the Indian market is often seen as a 'buy-on-dip' space, the current high valuations made a correction necessary. This situation is not uncommon, as markets need to adjust to ensure that valuations align with longer-term averages.
Another major contributor to the downturn was FII selling. Foreign institutional investors (FIIs) have been aggressively offloading shares this month, setting a record for share selling. By October 21st, they had sold off a massive Rs 88,244 crore worth of shares, according to NSDL data. Just yesterday, FIIs further offloaded Rs 2,261.83 crore, while domestic institutional investors (DIIs) stepped in to purchase Rs 3,225.91 crore worth of stocks. This dynamic highlights a tug-of-war between international and domestic investors, with FIIs looking towards other investment opportunities, potentially in cheaper markets like China, following the Chinese government's stimulus announcement to boost its economy.
Adding to the bearish sentiment was a global trend of decline. The bearish mood was not limited to India, as markets across Asia experienced similar downturns. Japan's Nikkei fell by 1.39%, and South Korea's Kospi index dropped 1.31%. Analysts attributed this to rising US bond yields, which have dampened expectations for aggressive rate cuts by the Federal Reserve. This, in turn, has impacted fund flows into emerging markets like India.
The downturn impacted all sectors, with heavyweights like Reliance Industries, HDFC Bank, and TCS contributing significantly to the decline. Mid and small-cap segments bore the brunt of the selling pressure, plummeting by 2.61% and 3.92%, respectively. This downward spiral, characterized by lower highs and lows, indicated a strengthening grip of bearish sentiment on the market.
Despite the gloomy outlook, analysts believe that a short-term bounce might be on the horizon, driven by oversold conditions in the mid and small-cap sectors. However, the upside potential might be limited, with resistance anticipated around the 24,670 mark. Support levels lie between 24,370 and 24,430. The next major support for the Nifty is around 24,000, with potential resistance between 24,700 and 25,000 in case of a rebound. Investors are advised to adjust trades accordingly and avoid adding to losing positions.
Today's market movements serve as a stark reminder of the volatility inherent in equity investing. As investors digest this downturn, their attention will turn to upcoming economic indicators and corporate earnings reports to gain insights into the future direction of the market. The Reserve Bank of India's optimistic GDP growth forecast of 7.2% for FY25 suggests that the current slowdown might be temporary, offering a glimmer of hope for a recovery in market sentiment in the near future.
While today's nosedive is concerning, it is important to remember that markets are cyclical. With strategic decision-making and patience, investors may find opportunities even amidst uncertainty.
Source: Stock market meltdown: Why Sensex tanked over 900 points today