 |
|
The Indian stock market experienced a significant downturn on Wednesday, with the Sensex plummeting over 980 points and the Nifty falling below 23,600. This sharp sell-off was driven by a confluence of factors, including rising inflation, foreign institutional investor outflows, and a strengthening US dollar.
One of the primary contributors to the market's decline was the surge in consumer price inflation (CPI). India's CPI reached a 14-month high of 6.21% in October, up from 5.49% in September. This increase was primarily attributed to rising food prices, particularly vegetables and oils. The elevated inflation rate dampened market sentiment as investors worried about the potential for the Reserve Bank of India (RBI) to hold back on a rate cut in December. This apprehension stemmed from the expectation that the RBI would prioritize controlling inflation over stimulating economic growth, putting pressure on companies' profit margins.
Adding to the market's woes were the continued outflows of foreign institutional investors (FIIs) from Indian equities. FIIs have been net sellers of Indian shares for 32 consecutive sessions, totaling an estimated $14 billion in outflows. This trend is partly driven by China's recent stimulus package, which has made Chinese assets more attractive to global investors. Furthermore, the strong valuations of Chinese stocks relative to Indian equities have also lured investors away from the Indian market.
Further exacerbating the situation were the rising US Treasury yields and the strength of the US dollar. As US bond yields rise, they make US assets more appealing to investors, leading to outflows from emerging markets like India. This trend is amplified by the appreciation of the US dollar, which makes it more expensive for foreign investors to buy Indian assets. The Dollar Index, which measures the dollar's strength against other major currencies, reached 105.97, further fueling the outflows from Indian markets.
Adding to the market's uncertainty was the Nifty's dip below its 200-day moving average (200-DMA) for the first time since April. The 200-DMA serves as a technical indicator that often signals a major market correction. This indicator suggested that the market's upward momentum had been broken and a significant decline was underway.
Finally, the upcoming Maharashtra elections added to the cautious sentiment among investors. As an economic powerhouse, Maharashtra holds significant political and economic weight. Investors were concerned about the potential for political uncertainty and its impact on government policies and sectors tied to government initiatives. This uncertainty further contributed to the sell-off, as investors sought to reduce their risk exposure in the face of potential volatility.
Source: ET Market Watch: Sensex plummets over 900 pts; key factors behind today's panic sell-off