The Indian stock market has been facing a consistent downward trend, with Nifty losing around 480 points in the last five trading sessions. As per market analysts, the situation may worsen in the coming days due to a mix of global events and technical market issues. One of the primary reasons for this forecast is the escalating tension in the Middle East, particularly after Iran’s missile strike on Israel on October 1, 2024.
On October 1, Nifty dropped from its all-time high of 26,277 to 25,797, and market experts believe that this decline could continue. With the market closed on October 2 for Gandhi Jayanti, all eyes are on how the market will react on October 3 when it reopens, factoring in the geopolitical developments.
Market Weakness and FIIs Influence
Ruchit Jain, from 5paisa.com, explained that the market’s previous rise after the U.S. Federal Reserve lowered interest rates was primarily driven by Foreign Institutional Investors (FIIs). Domestic retail investors and high-net-worth individuals, however, have largely stayed away, which has contributed to the market’s recent instability. He pointed out that FIIs have a long-short ratio of 85%, leaving limited room for additional long positions. This has constrained the market’s upward momentum.
Moreover, the client’s long-short ratio in index futures is at 35%, indicating that investors are cautious about increasing their long positions in the current environment.
Crude Oil Prices and Its Impact
Another factor contributing to the potential market fall is the rising crude oil prices. After the Middle East conflict intensified, crude oil surged to $74 per barrel. Some market analysts warn that if crude oil prices hit $85 per barrel, the Indian stock market could drop by as much as 15%.
However, there is a glimmer of hope that the situation might stabilize if the conflict remains contained within the Middle East. In such a case, crude oil prices could settle, reducing the immediate risk to the Indian stock market.
Technical Weakness in Nifty and Banking Sector
Rajesh Palviya, Senior Vice President at Axis Securities, highlighted that Nifty and the banking sector are currently experiencing technical weaknesses. He observed that the index is not receiving support from major large-cap banking stocks, which could further deepen the market’s fall. He also pointed out that there is a short build-up in Nifty ahead of the weekly expiry, which might negatively impact major indices. Palviya predicted that Nifty could drop another 100-150 points when the market reopens on October 3.
Global Market Pressures Add to Domestic Concerns
The pressure on Indian markets is not happening in isolation. Global markets are also showing signs of strain. The U.S. S&P 500 index fell by 0.9%, and the rising Volatility Index (VIX) in the U.S. indicates that market fluctuations are expected. Experts suggest that investors should be cautious in the coming days, especially with the combined domestic and international challenges facing the market.
As tensions in the Middle East and global market volatility increase, investors are advised to closely monitor developments, especially the performance of U.S. markets on October 2. These factors will play a crucial role in determining how the Indian stock market moves in the coming days.
