Sensex tumbles 500 points: What's dragging markets down today?
What's the story
The benchmark equity indices, Sensex and Nifty, witnessed a sharp decline on Monday. At 10:40am, the Sensex had plummeted by 491.66 points or 0.64% to trade at 76,772.84. The broader Nifty index fell to 23,997.95 after losing 178.2 points or 0.73%. The fall was mainly due to renewed tensions between the US and Iran, which led to a spike in crude oil prices. The development negatively impacted investor sentiment.
Market drivers
US-Iran tensions push up crude oil prices
The market decline was driven by higher crude oil prices after US forces attacked two Iranian launchers, the first such American strikes on Iran since late July.
Brent crude, the global oil benchmark, jumped 2.33% to $90.19 per barrel.
Concerns over a potential September rate hike by the US Federal Reserve also contributed to this trend as it pushed US Treasury yields higher and triggered a broad dollar rally.
Currency impact
Rupee falls under pressure from rising crude oil prices
The rupee also took a hit, falling 13 paise to trade at 95.56 per US dollar under pressure from rising crude oil prices and geopolitical tensions.
Foreign institutional investors (FIIs) sold Indian equities worth ₹5,039.8 crore on Friday, further adding to the market's woes.
Sustained selling by foreign investors can put pressure on Indian equities as it reduces foreign capital flows into the domestic market and weighs on investor sentiment.
Global influence
Asian markets reflect global uncertainty
Asian markets reflected the global uncertainty with South Korea's Kospi, Japan's Nikkei 225, Shanghai's SSE Composite, and Hong Kong's Hang Seng all trading lower.
US markets also ended lower on Friday while Wall Street futures were down up to 0.5%, indicating a weak opening for US equity markets.
The India VIX, a measure of market volatility and investor fear, rose over 5% to 11.26 amid these developments.
Market anticipation
IT index falls 2%
Investors are bracing for potential volatility from an MSCI index rejig, which will be implemented at Monday's session close.
The change comes weeks after a new share closing system was launched, adding to traders' concerns about market stability.
Meanwhile, the IT index fell by 2% after rising 3.5% in the previous session, further weighing on the broader market performance.