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The Indian stock market experienced a significant downturn, marking its fifth consecutive day of decline. The Sensex plummeted over 1200 points, while the Nifty fell below 23,000, painting a bleak picture for investors. All major sectors ended in the red, with the BSE Smallcap and Midcap indices experiencing particularly sharp drops of 3.9% and 3.5%, respectively. Banking giants like HDFC Bank, ICICI Bank, and Kotak Mahindra Bank were among the hardest hit, losing up to 3% of their value. This widespread decline reflects a confluence of factors, primarily stemming from escalating global trade tensions and persistent selling pressure from foreign institutional investors (FIIs). Technically, the market's weakness is evident in the bearish candle formed on the daily chart, signaling potential further decline unless key support levels are breached. Analysts from Kotak Securities highlighted the 20-day Simple Moving Average (SMA) or 23,300/77,000 as a crucial level. A break below this could lead to a retest of the 23,220-23,175/76,700-76,500 range, while resistance is expected around 23,500/77,600.
One of the primary drivers behind this market slump is the escalation of global trade tensions, fueled by the US President's decision to impose a flat 25% tariff on steel and aluminum imports. This move, unlike previous measures, excludes country-specific exemptions, impacting imports from major economies like Canada, Brazil, Mexico, and South Korea. The resulting uncertainty has triggered widespread concerns about a potential global trade war, significantly impacting investor sentiment in emerging markets such as India. This protectionist stance by the US administration casts a long shadow over global trade, creating ripple effects across various industries and economies. The imposition of these tariffs is perceived not only as a trade barrier but also as a sign of broader protectionist policies that could hinder global economic growth and investment flows.
Adding fuel to the fire is the persistent selling pressure exerted by Foreign Institutional Investors (FIIs). Since October of last year, FIIs have been aggressively withdrawing funds from Indian stocks, a trend primarily attributed to rising US bond yields and a strengthening US dollar. The outflow has been substantial, with February alone witnessing a net sell-off of Rs 12,643 crore in the cash segment. Since October, the total outflow has surpassed Rs 2.75 lakh crore, signifying a major shift in investor sentiment towards Indian equities. This capital flight reflects a shift in global investment preferences, as investors seek higher returns and stability in US markets, particularly given the attractive yields offered by US Treasury bonds. The resulting liquidity crunch in the Indian market has further amplified the downward pressure on stock prices.
The sharp increase in US bond yields has further dampened market sentiment. The US 10-year Treasury yield currently stands at 4.495%, making US assets significantly more attractive to global investors seeking higher returns. This divergence in yield attracts capital away from emerging markets like India, exacerbating the existing outflow of FII investments. The higher yields in US bonds present a compelling alternative for global investors, prompting them to shift their investments towards safer and more lucrative options. This competition for global capital further intensifies the pressure on the Indian market, making it more challenging for Indian stocks to attract and retain investment.
Finally, valuation concerns in the small and midcap segments are adding to the pressure. Despite a significant correction, analysts believe that these stocks remain overvalued. The BSE Smallcap and Midcap indices have both seen sharp corrections exceeding 3%, reflecting this concern. The relatively high valuations of these stocks make them vulnerable to further sell-offs as investors reassess their risk-reward profiles. The sustained outflow of investments and fears of a global trade war have further intensified the pressure on these already stretched valuations, leading to heightened volatility and uncertainty in the market. This lack of confidence in the valuations is compounding the other negative factors, leading to a perfect storm of bearish sentiment.
Source: 4 reasons why markets are falling for the 5th straight day - Market News