The Indian stock market plummeted on Thursday, with benchmark indices Sensex and Nifty 50 opening more than one percent lower due to weak global signals and rising concerns over escalating geopolitical tensions in the Middle East, heightening fears of a potential full-scale Iran-Israel war.
The Sensex dropped 1,264.20 points, or 1.50%, opening at 83,002.09, while the Nifty 50 fell by 344.05 points, or 1.33%, to open at 25,452.85. Over the past four sessions, the Nifty 50 has declined by 3%.
All sectoral indices, except for Nifty Metal, were experiencing significant losses, with Nifty Auto, Nifty FMCG, Nifty Realty, and Nifty Private Bank seeing the steepest declines. Additionally, the Nifty Midcap 100 and Nifty Smallcap 100 indices also traded lower.
The stock market crash today led to a decline in the market capitalization of all listed companies on the BSE by over ₹5.5 lakh crore, bringing it down to approximately ₹469 lakh crore. Mixed signals from Asian markets and the US stock market overnight, along with new guidelines from the Securities and Exchange Board of India (SEBI) regarding derivatives trading, also negatively impacted market sentiment.
Here are five key factors contributing to today’s crash in the Indian stock market:
Israel – Iran War
Tensions in the Middle East escalated following Iran’s launch of approximately 200 missiles at Israel on October 1, in retaliation for the killing of Hezbollah leader Hassan Nasrallah. In response, Israel has vowed to make Iran “pay” for the attack, while Tehran has warned of an even larger retaliation if it is targeted. Additionally, Israel announced limited ground incursions into Lebanon aimed at the Iran-backed Hezbollah militia.
In the latest development, Guardian reported that at least six people have been killed and seven were injured in an Israeli attack on a health centre in central Beirut.
SEBI F&O Rules
Market regulator SEBI has tightened the rules for equity derivatives trading, raising entry barriers and increasing costs for traders in this asset class. In its latest circular, SEBI introduced several new guidelines, including reducing the number of weekly options contracts available for trading to one per exchange and nearly tripling the minimum trading amount, among other changes. Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, believes that while these measures can enhance market resilience, they also present challenges.
“Stricter norms around leverage, transparency, and capital adequacy could limit the ability of investors to determine their own risk appetite, thereby stifling innovation in trading strategies. By putting guardrails around the market, SEBI may inadvertently reduce participation from those investors who could have otherwise contributed significantly to the evolution and liquidity of the market. Over-regulation in an environment that thrives on strategic flexibility and creativity could dampen the market’s dynamism, affecting India’s competitiveness in the global derivatives landscape,” Sharma said.
According to him, the challenge now is for market participants to align with these enhanced compliance standards while striving to maintain innovation and growth.
Crude Oil Prices
Crude oil prices traded higher as worries of a further escalation in the Middle East intensified, stoking anxieties that oil supplies from the world’s top-producing region may be threatened if the conflict intensifies. A rise in oil prices is a negative for importers of the commodity like India, as crude contributes significantly to the country’s import bill.
Brent crude futures rose 1.24% to $74.82 a barrel, while US West Texas Intermediate crude futures rallied 1.37% to $71.06 a barrel.
FII Selling
The foreign institutional investors (FIIs) extended their selling as they sold equities worth ₹5,579.35 crore on October 1, while domestic institutional investors extended their buying as they bought equities worth ₹4,609.55 crore on the same day. FIIs were net sellers for the third consecutive day on Tuesday.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services is of the view that FIIs may continue to sell since Chinese stocks have turned bullish and a lot of money is moving into the Hong Kong market which continues to be cheap relative to the high valuations in India.
Technicals
Nifty 50 broke the downside support levels of 25,700, followed by 25,500.
“A break below these levels could trigger additional selling of 300 – 500 points. Traders with long positions are advised to book profits near resistance zones and wait for dips to re-enter buying positions,” said Hardik Matalia, Derivative Analyst at Choice Broking.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.