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Stock market crash: A strong wave of selloff engulfed the Indian stock market on Monday, 11 May, dragging the benchmarks — Sensex and Nifty 50 — down by more than 1% each during the session.
The 30-share pack Sensex crashed almost 1,200 points, or more than 1%, to an intraday low of 76,166, while the NSE counterpart Nifty 50 plunged over 1% to the day's low of 23,845. The BSE 150 Midcap and 250 Smallcap indices also declined by up to a per cent during the session.
The overall market capitalisation of BSE-listed firms dropped to nearly ₹468 lakh crore from ₹473.5 lakh crore in the previous session, making investors poorer by more than ₹5 lakh crore.
The Indian stock market experienced a significant selloff, with the Sensex crashing almost 1,200 points. Key factors contributing to this decline include faltering US-Iran talks, Prime Minister Narendra Modi's call for austerity, a surge in crude oil prices, a weaker rupee, and technical breaches of support levels by the Nifty 50.
The failure of US-Iran talks led to uncertainty over the West Asian conflict, keeping crude oil prices above $100 per barrel. This fueled fears of rising inflation and slowing economic growth, negatively impacting market sentiment and contributing to the stock market crash.
Prime Minister Narendra Modi's call for austerity, urging restraint in using petrol, gas, diesel, and avoiding gold purchases, has negative implications for economic growth and corporate earnings. Experts believe this call impacted market sentiment more than the Iran crisis.
A weaker rupee can aggravate foreign capital outflow, increase inflationary pressure, and potentially lead to tighter monetary policies. This combination of factors poses a macroeconomic concern and contributes to the downward pressure on the stock market.
Experts suggest that investors should view market selloffs as a planning moment rather than a trading opportunity. They recommend maintaining consistent contributions to diversified index funds and potentially making modest, phased increases to gold and silver as hedges, rather than making wholesale changes to long-term financial plans.
Let's take a look at 5 key factors behind the fall in the Indian stock market:
Hopes of a possible US-Iran talk were dashed after the US President Donald Trump rejected Iran's peace offer, calling it unacceptable.
According to Fox News, analysts believe that failed US-Iran talks may lead Washington to quickly degrade Tehran's military capabilities.
Trump, meanwhile, reportedly said that the US remains determined to confiscate Tehran’s remaining enriched uranium. Israeli Prime Minister Benjamin Netanyahu said Iran’s nuclear programme remains an unresolved threat despite recent military operations.
Experts underscore that the market is reacting to the lingering uncertainty over the West Asian conflict, which has kept crude oil prices above $100 per barrel for more than two months, fuelling fears of inflation rising and economic growth losing momentum.
Some experts believe Prime Minister Narendra Modi’s austerity call has also impacted market sentiment. Amid the ongoing West Asia crisis, the PM on Sunday urged Indians to use petrol, gas, diesel and such things with great restraint, and to avoid purchasing gold for one year.
"I think the market today has been impacted more by Prime Minister Narendra Modi’s austerity call than by the non-resolution of the Iran crisis. The Prime Minister urged people to cut down on the consumption of petrol, diesel, gold and even foreign travel. In brief, it is an austerity call," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
"Such a call has negative implications for economic growth and, consequently, for corporate earnings as well. That, in my view, is affecting the market more than the geopolitical uncertainty surrounding Iran," Vijayakumar said.
Crude oil benchmark, Brent crude, jumped over 4% to reclaim the $105 per barrel mark, as US-Iran peace talks faltered and oil supply through the Strait of Hormuz remains severely restricted.
Oil prices have remained elevated for more than two months now. For a country like India, which imports about 85-90% of its total oil requirements, elevated oil prices are a serious macroeconomic concern.
The Indian rupee opened 40 paise weaker at 94.88 against the US dollar on Monday amid a rise in crude oil prices and buying of the greenback.
Rupee's weakness can further aggravate foreign capital outflow, increase inflationary pressure and may lead to tighter monetary policies.
The Nifty 50 breached 23,900, breaching its crucial support at 24,000. According to Rajesh Palviya, Head of Research, Axis Direct, Nifty must defend 24,000.
"Unless and until a daily close above 24,340 is recorded, the prevailing bias stays cautious, with 23,800 the next pocket of support should that floor crack," said Palviya.
Bajaj Broking underscored that the Nifty 50 has been trading in a triangular consolidation in the broad range of 23,800-24,400 for the last three weeks.
The brokerage firm expects the index to extend the current consolidation, with stock-specific action likely to continue amid the quarterly earnings session.
"Only a breakout and a close above 24,400 will open further upside towards 24,600 and 24,800 levels. Failure to move above 24,400 will signal an extension of the last three weeks' consolidation in the 24,400-23,800 range. Short-term support is placed at 23,800, being almost identical to the low of the last three weeks," said Bajaj Broking.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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