Why did the stock market fall today? Sensex and Nifty conclude week in deep red as 5 big factors listed to sell off.
The Indian share market saw massive selling on Friday as benchmark indices Sensex and Nifty 50 logged 4th straight session of fall. Crude oil prices on rise, geo-political tensions in west Asia, weak global cues, the dollar-rupee difference and outflow of foreign funds kept the investors under pressure.
The BSE Sensex sank as much as 797.02 points, or 1.08 per cent, intraday to 72,452.37. The NSE Nifty 50 fell 315.65 points, or 1.39 per cent, to 22,372.00 intraday low – below the crucial 22,400 mark. The Bank Nifty index was also down by over 1 per cent intraday.
The selling pressure was seen across sectors where Nifty Metal, Nifty Realty, Nifty Auto, Nifty FMCG, Nifty Oil & Gas and Nifty Media were among the losers. The broad-based fall showed that investors booked profit from equity exposure as uncertainties in the global financial markets mounted.
Why did Indian stock market fall today? Here are five major reasons for Sensex, Nifty 50 selloff.
- Crude Oil Prices Jump Above 114 a Barrel
Those factors significantly impacted the market’s performance on Friday. One of the major contributors was the surge in international crude oil prices. Brent crude futures were up 1.2% at $114.47 a barrel whereas US WTI crude futures rose 1.4% to $100.84 a barrel.
The increase in oil prices was spurred by fears of potential Middle East energy supplies interruptions following Saudi Arabia attack with Houthi military.
India is big importer of crude and therefore skyrocketing crude prices mean higher import bill for India. For India that is already struggling with a widening current account deficit and a falling rupee higher crude oil prices add to inflationary pressures.
High crude oil prices can also raise the cost of operating any business, especially in areas such as aviation, transportation, paints, chemicals, and other products relying on petroleum derivatives.
Energy is less of a concern for oil importers, such as airlines and railroads, which could see profits squeezed unless they transfer the higher input costs to consumers. Investors may choose to sell stocks that could be affected by higher energy prices.
It’s even tougher if the price of crude oil stays high for an extended time. A broader risk of inflation can have repercussions on interest rate expectations, corporate profits and the economy at large.
Therefore, increase in crude prices contributed to the indices’ sell off along with economic slowdown and slowdown in senwcorporate earning growth.
- Rising Geopolitical Tensions in West Asia
Another major factor contributing to the fall was the lack of clarity about where geopolitics are headed. Geopolitical tensions flared up as West Asia remained tense, with the war adding to concerns about stability, oil and gas supply, and additional escalation.
The violence prompted further concern that there could be more spillovers in the region.
US president Donald Trump also warned about Iran’s nuclear program saying ‘we are in a far better deal’ and adding the United States could do something to ensure Iran does not build a nuclear weapon.
At the same time, media reports indicated that Iran had issued a threat to respond to possible renewed US and Israeli missile strikes with strikes on US military bases in the region and infrastructure.
These types of actions can also impact the financial markets, due to the fact West Asia is a strategic location in the world for transport of production of energy. If oil production or transport is threatened, or if regional infrastructure is threatened, oil prices tend to go up.
To investors, growing geopolitical tensions usually mean more risk. When times are uncertain, investors sometimes want to be less long stocks and pile into what they see as more defensive investments.
Indian market remained susceptible to any news that could add to the rise in crude oil prices. As such, continued uncertainty in West Asia would have impacted the sentiment and prompted profit selling in the domestic indices.
- Weak Global Markets and a Sharp Technology Stock Selloff
International markets are also weighing on Indian stocks. Asian markets closed sharply lower on Friday, with South Korean stocks sliding more than 3%.
Shares retreated after a lacklustre session on Wall Street, where US equities closed largely lower on Thursday. The tech-heavy Nasdaq Composite finished down more than 2%, its worst single-session performance since early June, a market report provided.
The hardest-hit sector by the global selloff was technology stocks. New concerns about the escalation in spending race on artificial intelligence have led to debates on costs, future returns and the overall valuation of certain technology stocks.
With the given numbers, the Philadelphia Semiconductor Index declined 6.7%, its largest daily percentage loss since June 23.
An immediate selling pressure on global markets may arise from a quick slide in US tech and semiconductor stocks. When investors’ risk appetite cools, global funds tend to re-balance their portfolios in multiple markets, which could put India and other emerging markets under selling pressure.
The Indian market is not an isolated one. Foreign investors, global asset managers and other participants factor in movements in the big global economies when making investment decisions.
When global markets are taking heavy hits, investors may be wary of taking new positions in equities. This can add to volatility and may exert pressure on benchmark indices, even when the immediate trigger comes from outside India.
The weakness in Sensex and Nifty on Friday was reminiscent of this and was a part of the risk-off trade as global investors dumped high-flying counters over worries on global growth, tech valuations and geopolitical risks.
- Continued FII Selling Puts Pressure on Indian Equities
FII selling continued to remain another major factor weighing on the Indian stock market.
As per the exchange data referenced in the attached report, FIIs dumped Indian equities worth Rs.3,458.70 crore in the cash segment on Thursday. Their total cash segment sale in October had surpassed Rs.52,000 crore.
Foreign investor outflows can exert downward pressure on share prices, especially when buying domestically is not enough to offset selling.
Indian equity markets is very important road for over international institutional investors. Investments in stocks can be affected by global interest rate, fluctuations in foreign currencies, valuations, geopolitical risks and other opportunities available in the different markets.
If foreign investors exit Indian stocks, large-cap stocks and index may face selling pressure as the stocks tend to make up a large proportion of institutional fund portfolios.
Continued foreign selling will, likewise, influence the rupee if the outflows heighten the surge of foreign currency. A weaker currency, on the other hand, has the opposite effect in raising the price of foreign goods like oil.
The foreign investor selling does not always imply a more structural decline in the medium or long term for the Indian equities. Institutional flows may shift as valuations, earnings expectations and global environment change.
Meanwhile, persistent FII outflows will be another key aspect to watch as we decide the likely direction of the Sensex and the Nifty 50.
- Nifty 50 Breaks Key Technical Support Levels
Technical factors also complemented the selling pressure as the Nifty 50 dipped below the key 22,500 mark psychologically and moved towards 22,400.
If an index breaches a key support area, technical traders might look at this as an indicator that momentum is waning.