In a dramatic turn of events, the Indian stock market experienced a significant downturn today, with the Sensex plunging over 1,000 points and the Nifty slipping below the crucial 24,900 mark. This sharp decline has left investors and analysts scrambling to understand the factors behind the sudden market crash.
The Sensex closed at 81,183 points, down by 1,017 points or 1.24%, while the Nifty ended the day at 24,852 points, a drop of 293 points or 1.17%. The sell-off was primarily driven by profit booking following a recent rally that had pushed the indices to new highs earlier this week.
Several key factors contributed to the market’s decline. Firstly, a potential regulatory change in the futures and options segment dampened investor sentiment. Reports suggest that India’s market regulator, SEBI, is planning to tighten derivative rules to curb retail speculation. This includes limiting options contract expiries to one per exchange per week and significantly increasing the minimum trading amount, which could raise trading costs and entry barriers for retail investors.
Additionally, heavyweights like SBI, Reliance Industries, HCL Tech, ICICI Bank, Larsen & Toubro, and Infosys saw their shares fall by up to 1%, further dragging down the indices. The State Bank of India (SBI) was the biggest loser, with its share price dropping by 4.40% following a downgrade by Goldman Sachs from ‘Neutral’ to ‘Sell’.
Sectoral indices also reflected the broader market weakness, with the Nifty PSU Bank index falling by 3.57%. Other sectors such as Oil and Gas, Metals, Media, and Consumer Durables also saw declines ranging from 1-2%. The broader markets were not spared either, with the BSE SmallCap index falling by 0.74% and the BSE MidCap index slumping by 1.23%.
Foreign portfolio investor (FPI) selling added to the pressure, with outflows totaling Rs 5,076 crore in May, following Rs 8,671 crore in April. The preference for relatively lower-valued Chinese and Hong Kong markets has also contributed to the FPI exodus from Indian equities.
As the market grapples with these challenges, investors are advised to stay cautious and keep an eye on regulatory developments and global market trends. The current volatility underscores the need for a balanced investment approach and a focus on long-term fundamentals.