The Indian stock market witnessed a significant decline as the Sensex fell by 375 points on Friday, leading to a loss of ₹3 lakh crore for investors. The market has been under pressure, with continuous selling for the fourth consecutive day. Nifty also saw a decline of 114 points, trading at 24,635. Various sectors, including FMCG, IT, and Oil & Gas, faced heavy losses, and broader market indices like the BSE Midcap and Smallcap saw declines of 0.75% and 1.25%, respectively. The market sentiment remained largely negative, with all sectoral indices except banking showing losses.
Here are the five key reasons driving this downward trend in the stock market:
1. Foreign Investors’ Selling Spree
Foreign Institutional Investors (FIIs) have been pulling out their investments from the Indian stock market at an alarming rate. So far in October, foreign investors have sold approximately ₹74,732 crore worth of shares, marking the highest monthly outflow in the last 4.5 years. Several global factors, such as concerns over the US presidential election, economic changes in China, and the ongoing tensions in the Middle East, have contributed to this selling pressure. The massive withdrawal by foreign investors has caused significant volatility in the Indian stock market.
2. Disappointing Quarterly Results
The September quarter earnings season has been underwhelming for many large companies, which has further dampened market sentiment. Investors were expecting better performance, but the weaker-than-expected results have led to a rise in profit booking, causing stock prices to fall. The lackluster results from major sectors have shaken confidence among traders and investors, leading to increased selling across the board.
3. Geopolitical Tensions
Geopolitical uncertainties, particularly in the Middle East, have further worsened the market’s mood. Investors are wary of the potential impact on global trade and economic conditions, which has led to risk aversion. As tensions persist, market experts believe that uncertainty will continue to influence investor decisions, causing more volatility in the Indian stock market. Additionally, the ongoing Canada-India diplomatic dispute has added to the pressure, creating a challenging environment for investors.
4. Reduced Liquidity Due to Large IPOs
Another factor impacting the stock market is the reduced liquidity, as many institutional investors have shifted their focus towards large Initial Public Offerings (IPOs). For example, the recent Hyundai Motor IPO has attracted significant attention and investment from major players, leaving less liquidity available for the stock market. This reallocation of funds has contributed to the drop in trading volumes, further exacerbating the market decline.
5. Weakening Hopes for an Interest Rate Cut
Rising inflation has diminished expectations of an interest rate cut by the Reserve Bank of India (RBI). Retail inflation surged to 5.5% in September, the highest in the past nine months. In contrast, August inflation was much lower at 3.65%. With inflation remaining high, the chances of a rate cut are slim, which has put additional pressure on the stock market. Higher inflation often leads to tighter monetary policies, discouraging investment and affecting market sentiment.
Technical Analysis and Expert Views
Technical experts point out that the Nifty has been trading below its 50-day Simple Moving Average (SMA) for the past three days, indicating further weakness in the market. According to Anand James, Chief Market Strategist at Geojit Financial Services, the next support levels for Nifty could be around 24,300 and 23,900.
Market analyst Ambrish Baliga commented that foreign investor selling might continue for some time, driven by geopolitical issues such as the Canada-India dispute. While this may not have an immediate impact on trade, tensions could persist, ultimately affecting the long-term outlook for the stock market.
The stock market’s recent downturn serves as a reminder of the importance of caution and careful decision-making during volatile times.
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