India's stock markets had another volatile day yesterday, as the BSE Sensex and NSE Nifty 50 lost another day, with more than ₹3.5 lakh crore of investor wealth extinguished in less than 30 minutes of market opening.
The sharp sell-off was a manifestation of the continued struggles in domestic and global markets and the response of the market to rising crude oil prices, continued foreign institutional investor (FII) selling in conjunction with the global economic crisis. We are also seeing a cautious spirit ahead of the macroeconomic data and corporate earnings.
The Sensex started in the red and shed hundreds of points in early trade and the Nifty 50 fell below key psychological levels, leading the broader market indices lower. Selling pressure was evident in the banking, information technology, auto, metal and financial sectors.
As share prices fell, the total market capitalisation of all the companies listed on the BSE dropped by over ₹3.5 lakh crore and investors suffered huge losses. The decline added to the wealth that had been wiped out over the previous four trading sessions, and is a sign of the combustible market sentiment in the stock market.
One of the key factors weighing on investor confidence is the sharp surge in international crude oil prices that recently climbed above $100 per barrel. Higher crude prices raise concerns over inflation, increase India’s import bill and may pressure corporate profitability, especially for sectors heavily dependent on fuel and transportation.
Foreign institutional investors (FIIs) also remained net sellers in light of global uncertainty and changing expectations for interest rates in major economies worldwide. The continuous foreign fund outflows have kept the Indian stock market under pressure even though the domestic stock market has been holding up well.
The broader markets mirrored the weakness of the benchmarks as well, with both the Nifty Midcap and Smallcap indices falling. Market breadth is still negative and most listed stocks are down in the red during the session.
Despite the sharp stock market drop, market experts say the long-term fundamentals of the Indian economy remain intact. They argue that today's volatility is more due to global politics and geopolitical tension, high oil prices and uncertainty of monetary policy and not to the weakening in domestic economic situation.
Investors should not panic sell during times of high volatility, analysts say, and rather, keep an active portfolio that is diversified from now on, be very hands-on, and focus on the top companies and take market corrections as the right time to make long-term investments and not as panic selling.
Investors will watch for future corporate earnings, global market trends, crude oil prices and FII activity for further direction. Any easing of geopolitical tensions or lower oil prices would help to better market sentiment in the following sessions.
With the Sensex and Nifty losing for the fifth straight day and investors losing more than ₹3.5 lakh in early trade, market participants remain cautious. The focus now will be on whether the benchmarks can recover and the market will see a recovery or if the global pressures will keep coming for the next few weeks and keep hurting the stock market in the near term whether the indices will be unable to recover from the global headwinds.
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