The Indian stock market witnessed heightened volatility on Monday, October 7, with the benchmark Sensex plunging nearly 1,100 points from its intraday high. The widespread selloff triggered concerns among investors as major indices, including the Nifty 50, also fell sharply. Foreign portfolio investor (FPI) selloffs, geopolitical tensions, and local political factors have all contributed to the ongoing market downturn, leaving investors anxious about the near-term prospects.
Sensex Falls 1,100 Points: Key Reasons Behind the Stock Market Dip
Market Volatility: Sensex Drops 1,100 Points
On Monday, October 7, 2024, the Indian stock market experienced notable turbulence, with the Sensex plunging 1,088 points from its day’s high. Opening at 81,926.99 compared to its previous close of 81,688.45, the Sensex initially surged by nearly 450 points to 82,137.77. However, these gains were short-lived as the index reversed its course, ultimately closing 638 points lower, or a decline of 0.78%, at 81,050.
Similarly, the Nifty 50 opened at 25,084.10, climbed to a high of 25,143, but then tumbled to a low of 24,694.35. The Nifty 50 closed down 219 points, or 0.87%, at 24,795.75. The India VIX, a volatility index, also surged more than 6%, signalling growing market fears.
The mid and small-cap segments bore the brunt of the selloff, with the BSE Midcap index down 1.85% and the BSE Smallcap index plunging by 3.27%. Overall, the market capitalization of companies listed on the BSE fell to ₹452 lakh crore from ₹461 lakh crore in the previous session, wiping out around ₹9 lakh crore in investor wealth in a single day. Over the last six sessions, the total losses amount to a staggering ₹25 lakh crore.
Key Factors Weighing on the Market
The Sensex and Nifty 50 have remained under pressure for six consecutive trading sessions, each shedding over 5% during this period. The primary driver of this downward trend has been significant foreign portfolio investor (FPI) selloffs.
According to data from the National Securities Depository Limited (NSDL), FPIs offloaded Indian equities worth ₹27,142 crore within the first three days of October. A major reason for this outflow is the shift of capital to China, where recent economic support measures have made the country’s markets more attractive. As China offers comparatively cheaper valuations, many foreign investors are opting for it over India, which is currently trading at a premium.
In the last week alone, China’s Shanghai Composite Index has risen by 21%, and the Hang Seng index has surged over 15%. “The massive FPI selling is the primary factor behind the market’s fall,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “FPIs have sold more than ₹40,000 crore in the last four days. The Hang Seng index is up by 32% in one month. Big money is moving from India to China. This is abnormal. Markets tend to overreact. This is ‘sell India and buy China’. How long it will last remains to be seen.”
Geopolitical and Domestic Challenges
Aside from FPI activity, several other factors have been dragging the Indian market down. Geopolitical tensions, particularly in the Middle East, and the exit poll results of elections in Haryana and Jammu & Kashmir have also weighed on investor sentiment.
“Markets are trading under pressure as investor sentiment turned sour following exit poll results of Haryana and J&K elections, which showed the BJP lagging behind its peers,” noted Manish Chowdhury, head of research at StoxBox. “Also, the ongoing geopolitical tensions in the Middle East and the constant selling from the FPIs are keeping investors on their toes.”
Anshul Jain, head of research at Lakshmishree Investment and Securities, echoed similar concerns, adding that the Middle East tensions resulting from the Israel-Iran conflict, along with developments in China, are further exacerbating the global market downturn.
What Lies Ahead?
Despite the current volatility, experts remain optimistic about the medium- to long-term outlook for the Indian stock market. Many believe that the Indian economy’s robust growth and the strong participation of domestic investors will provide stability.
In the near term, market experts anticipate a potential bounce-back as stocks appear to be oversold. “The markets have corrected sharply in the past week, and there should be a reversal in the short term,” said Chowdhury. However, he cautioned that the market’s future direction will largely depend on the outcome of the upcoming Reserve Bank of India (RBI) policy meeting and corporate earnings reports.
Shrikant Chouhan, head of equity research at Kotak Securities, pointed out that the domestic market recently slipped below the 50-day Simple Moving Average (SMA) and formed a bearish candle on daily charts, indicating a possible downtrend. “The larger market texture is weak, but due to temporary oversold conditions, we could see non-directional activity in the near future,” he explained. For traders, key support zones are at 24,700/80,700 and 24,650/80,500, while resistance is expected around 25,000/81,800 and the 50-day SMA levels of 25,050/82,000.
Short-term traders are advised to remain cautious and selective to avoid being caught in lower-level traps.
While the current market situation appears bleak, experts suggest that the Indian market’s long-term outlook remains strong. As volatility continues, investors should stay vigilant, keeping a close eye on key economic indicators and global developments.
