Sensex plunges over 900 points: What's behind today's market crash
What's the story
The Indian stock market witnessed losses today, with the BSE Sensex and NSE Nifty both plummeting over 1%. The fall was mainly led by a slump in IT and auto stocks, along with fears of global economic trends. At 1:30pm, the Sensex had plunged by 927 points or 1.15% to 79,306 while the Nifty fell by 274 points to 24,000.
Sectoral decline
IT and auto stocks lead market downturn
The Nifty's sectoral indices for IT and auto stocks took the biggest hit, falling by 2.3% and 1.3% respectively. Infosys shares fell by 3%, TCS by 2.2%, Tech Mahindra by 2.5%, and HCL Tech by 2%. In the auto sector, major players such as Mahindra & Mahindra (-3.2%) and Eicher Motors (-2%) also witnessed heavy losses today.
Market reaction
US inflation data influences Indian IT stocks
The decline in IT stocks was driven by the latest US inflation data, which showed a slower-than-expected path for rate cuts. This has sparked fears of possible cuts in client spending, a key driver for Indian IT companies with high US exposure. Krishna Rao of JM Financial Services weighed in on the matter, saying markets are likely to remain volatile due to these global economic factors.
Global influence
US dollar strength and rate cut uncertainty impact emerging markets
A stronger US dollar has rendered emerging-market assets less attractive, adding to the volatility in the market. Asian equities are also bearing the brunt of dollar's recent rise and rising trade tensions. Sudeep Shah from SBICAP Securities observed that Nifty is struggling to breach its immediate resistance zone of 24,320-24,350, in line with its 100-day EMA. This technical resistance is another reason for today's fall.
Institutional caution
Institutions remain cautious amid global uncertainties
V K Vijayakumar of Geojit Financial Services emphasized that large institutions are staying cautious amid global uncertainties. He said, "While the cessation of relentless FII selling is a positive, FIIs are unlikely to turn aggressive buyers given the strong dollar and macro headwinds in emerging markets." This institutional caution is another reason behind today's market performance.
Market adjustment
Market correction brings Nifty's valuations to reasonable levels
The ongoing market correction has brought Nifty's price-to-earnings ratio down to an estimated 21x from October's peak of 25.8. Invasset PMS's Anirudh Garg suggested increasing cash levels in portfolios due to these stretched valuations. He said, "Indian markets need to take a breather from current levels." This adjustment is seen as a necessary step for the market to stabilize after today's significant losses.