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The Indian stock market experienced significant volatility on Monday, October 7, as the benchmark Sensex plummeted nearly 1,000 points from its intraday high. This decline, attributed to a broad-based selloff, underscores the impact of foreign portfolio investors (FPIs) shifting their focus away from India and towards China, driven by perceived attractive valuations in the Chinese market. The Sensex opened at 81,926.99, gaining initially before erasing all gains and ultimately closing 70 points lower at 81,618. Similarly, the Nifty 50 index, after an initial rise, experienced volatility, ending the day slightly lower. The volatility index, India VIX, jumped over 6 per cent during the session, reflecting the market's heightened uncertainty.
The selloff is not an isolated incident; the Sensex and Nifty 50 have experienced a six-day losing streak, shedding nearly 5 per cent. This decline is largely attributed to the significant offloading of Indian equities by FPIs, who, according to NSDL data, withdrew a staggering ₹27,142 crore in the first three days of October alone. This capital is being directed towards China, which has recently implemented measures to support its economy and financial markets. The shift is driven by the perception that Chinese markets offer attractive valuations compared to the premium valuations prevalent in the Indian market.
Chinese markets have witnessed remarkable gains in recent sessions. The Shanghai Composite Index has soared by 21 per cent in the last week, while the Hang Seng index has surged over 15 per cent. This trend has fueled a significant flow of capital from India to China, prompting concerns about the potential impact on the Indian market. Experts like V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlight the abnormal nature of this capital shift, characterizing it as a 'sell India and buy China' strategy. However, the duration of this trend remains uncertain.
Beyond the FPI selling, other factors have contributed to the market's decline. Geopolitical tensions, particularly in the Middle East, and the results of exit polls for the Haryana and J&K elections, which indicated the BJP lagging behind its peers, have also dampened investor sentiment. Analysts point to the double blow predicted by the Assembly Exit Polls for Haryana and Jammu & Kashmir as a key factor contributing to the weakness on Dalal Street. Additionally, the ongoing Israel-Iran conflict and developments in China continue to weigh on global markets, including the Indian stock market.
Despite the recent volatility, experts remain positive about the Indian market's medium-to long-term prospects. They cite the robust growth of the Indian economy and the substantial influx of domestic investors as factors supporting a positive outlook. In the near term, experts anticipate a rebound in the market, attributing the recent decline to an oversold condition. The reversal's sustainability, however, is contingent on the outcome of the RBI policy meeting this week and upcoming corporate earnings releases.
Market analysts highlight crucial support levels for the major indices. Sumeet Bagadia, Executive Director at Choice Broking, points to 81,000 as a crucial support level for the Sensex, with a breach below this level potentially leading to further selling. The Nifty 50 index is said to have a strong base at 24,750, with a fall below this level potentially pushing the index towards the 24,200 range. The Nifty Bank index has immediate support at 51,000 and crucial support at 50,250.
Source: Sensex crashes 1,000 points from Monday’s high; what drags the Indian stock market?