Sensex falls 1000 points: What triggered the bloodbath on D-Street

Sensex falls 1000 points: What triggered the bloodbath on D-Street

The S&P BSE Sensex took a steep dive, losing over 1,000 points to drop below 72,500, while the Nifty slipped below a crucial support level of 22,000, reulting in a bloodbath on Thursday.

Investors faced increased ‘uncertainty’ and ‘volatility’, resulting in intensified selling pressure.

The combined market capitalisation of BSE-listed companies plummeted by over Rs 7.6 lakh crore at one point. Subsequently, the BSE market capitalisation settled at Rs 3,93,13,049.66 crore compared to Rs 4,00,69,409.62 crore from the previous day.

The recent bloodbath on Dalal Street has been attributed to multiple factors, mainly the general election, foreign portfolio investor (FPI) selling, ongoing corporate earnings season, Federal Reserve (Fed) rate concerns, and geopolitical tensions.

Why has the stock market fallen? 

Lok Sabha elections – The lower voter turnout during the initial phases of the ongoing general elections has negatively impacted market sentiment.

There are concerns that a continued low turnout could influence the election outcome and consequently affect equity markets. However, experts suggest that the anticipated re-election of the BJP is still likely, but with fewer seats than previously expected.

“The turnout (so far) is a tad lower and while this could affect the outcome for a few constituencies, it is unlikely to majorly dent the widely expected outcome of BJP returning to power. We are not experts, so we cannot predict the number of seats that BJP/NDA would win, but we reckon that 400+ seats seem unlikely; however, in case the alliance manages that number, equity markets should rally. If a lower 300-330 seats for the NDA results in a knee jerk market reaction (a fall), we would treat it as a buying opportunity,” said PhillipCapital.Â

FPI selling and market valuations – Foreign investors have been withdrawing from Indian markets, with outflows totalling Rs 5,076 crore in May following Rs 8,671 crore in April.

VK Vijaykumar from Geojit Financial Services, told Business Today that the preference for Chinese and Hong Kong markets due to relatively lower valuations compared to India has also contributed to FPI selling.

“During the last one month while Nifty is down 1.5% the Shanghai Composite is up by 2.62% and Hang Seng is up by a whopping 8.8%. Chinese and Hong Kong markets are cheap with PEs around  10 while India is expensive with double the PE of these markets,” said Vijaykumar.Â

Q4 earnings for FY24 – The earnings season for the fourth quarter of FY24 has failed to provide positive surprises.

While some companies like Reliance Industries, HDFC Bank, and others surpassed profit estimates, several others including HCL Technologies and Titan fell short, said brokerage firm Motilal Oswal.

Fed concerns - Despite the May FOMC meeting’s cautious tone, worries persist over postponed Fed rate cuts.

Prashanth Tapse, Senior VP (Research), Mehta Equities said that the investors remain cautious due to high valuations and underwhelming Q4 earnings, leaning towards selective bullish investments amid inflation concerns.

Geopolitical tensions – Ongoing geopolitical tensions in West Asia and the Russia-Ukraine conflict have further weighed on market sentiment, adding to the overall uncertainty.

The confluence of these factors has led to a significant downturn in the Indian stock market with the volatility index reaching its highest level since October 2022.Â

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