Stock markets in India bore witness to a significant downturn on Monday as the Sensex and Nifty indices fell sharply by over 1%, driven by a confluence of negative factors that dampened investor sentiment. Rising geopolitical tensions between Iran and Israel, uncertainty over the US Federal Reserve’s rate cut decision after the release of higher-than-expected inflation data, and sustained withdrawals by foreign portfolio investors (FPIs) sent shockwaves through the market.
The 30-share Sensex took a substantial hit, dropping by 845.12 points or 1.14%, to conclude trading at an unsettling 73,399.78, marking its gravest decline in nearly a month. The plunge extended to 930 points during intraday trades. Similarly, the broader Nifty 50 retreated by 246.9 points, or 1.1%, ultimately closing at 22,272.5.
This rout over the last two trading sessions resulted in the Sensex shedding 1,638 points and the Nifty forfeiting 481 points. The financial repercussions were stark, as investor wealth diminished dramatically, erasing Rs 5.19 lakh crore. The overall market capitalization of all BSE-listed companies plummeted to Rs 394.48 lakh crore on Monday, tumbling from Rs 399.67 lakh crore on the preceding April 12.
Market experts continued to digest and interpret the contributing factors. Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, remarked, “Geopolitical tensions and inflationary headwinds in the Western world have led to pressure on equity markets worldwide. While India is relatively better placed, higher crude oil prices are a significant dampener.”
Tensions flared up over the weekend as Iran initiated a drone and missile attack against Israel in retribution for the latter’s April 1 strike on Iranian assets. This escalation compounded investor anxiety regarding the potential for a broader conflict.
Madan Sabnavis, Chief Economist at Bank of Baroda, observed that the attack by Iran has introduced a layer of uncertainty that will command the attention of markets globally, including India. “Hopefully, the present crisis will also pass. But central banks would definitely be concerned and would be monitoring all such developments,” he noted.
In the US, recent data revealed that the consumer price index (CPI) surged by 0.4 percent, seasonally adjusted, and rose 3.5 percent on a year-on-year basis in March, eclipsing both the February figure of 3.2 percent and an anticipated rate of 3.4 percent. This sparked fears among market participants that the Federal Reserve may postpone cuts to interest rates.
FPIs remained net sellers as they continued to unload shares for the second consecutive day, offloading equities worth Rs 3,268 crore on Monday, after a hefty sell-off of around Rs 8,000 crore in the previous session. The recent revision in the Double Taxation Avoidance Agreement (DTAA) with Mauritius, aimed to prevent treaty abuse for tax evasion or avoidance, raised red flags over tighter investment scrutiny, potentially contributing to the FPI sell-off.
Vinod Nair, Head of Research at Geojit Financial Services, pointed out that mid and small-cap indices were particularly hard hit due to their steep valuations and anticipated moderation in the earnings growth for Q4 FY24. The Nifty Smallcap 50 retracted by 1.04%, closing at 7,543, while the Nifty Midcap 50 diminished by 1.48%, ending at 13,841.3.
Notably, the Nifty Bank index also suffered, declining by 791 points, or 1.63%, ending the day at 47,773.25. Companies that saw the most pronounced declines on the NSE included Shriram Finance Ltd, Wipro Ltd, ICICI Bank, Bajaj Finance Ltd, and Bajaj Finserv Ltd.
The stock markets are witnessing volatility in response to the international landscape and internal economic indicators. While the situation remains fluid, the interplay of geopolitics and economics continues to bear heavily on the decision-making and strategies of investors and market participants alike.
