 "Monday mayhem: US poll uncertainty roils markets, Sensex falls 942 points")
Benchmark indices dropped as much as 2 per cent before recouping half the losses, as uncertainty around the tightly contested US Presidential election, sustained selling by foreign portfolio investors (FPIs), and earnings disappointments weighed on the markets. The India VIX index, a gauge for market volatility, spiked by 5 per cent to 16.7, the highest level since August 6.
After declining as much as 1.9 per cent to 78,233, the Sensex finished at 78,782, down by 942 points or 1.2 per cent. The Nifty 50 index recovered from a 488-point, or 2 per cent, slump to end at 23,995, down 309 points or 1.3 per cent. This fall has been the highest for both indices since October 3.
The total market capitalisation (mcap) of BSE-listed companies dropped by Rs 6.1 trillion to Rs 442 trillion. Since the market highs reached on September 27, mcap has declined by Rs 36 trillion.
Extending their record monthly selloff in October, FPIs sold shares worth Rs 4,330 crore on Monday.
Investors remain cautious, as earnings disappointments have raised concerns about a challenging demand environment and the sustainability of elevated valuations. Over a third of Nifty 50 companies missed estimates for the September quarter.
“The market was expensive, to begin with, and if the earnings are not good, then it tends to correct. Moreover, some foreign investors' money is being transferred to other countries from India. Post-pandemic, a huge financial stimulus was given everywhere, including India, leading to a spurt in earnings growth, which has to normalise. Those growth rates cannot come,” said Jyotivardhan Jaipuria, founder and managing director of Valentis Advisors.
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The outcome of the US Presidential election has further amplified risk aversion among investors. Democrat Kamala Harris and Republican candidate Donald Trump are in a close race. The influence of seven swing states, each with its own rules for handling and counting ballots, alongside the impact of postal votes, has made the election outcome more unpredictable.
A victory for Trump is likely to lead to looser fiscal policy and higher tariffs, which could fuel inflation and push up interest rates.
Though the Federal Reserve is expected to go for a 25-point cut this week, the 10-year US bond yield — an indicator of market expectations regarding the Fed’s decision — has clouded the outlook. The 10-year US Treasury yield has retreated slightly but remains firmly above the 4 per cent mark. In October, it rose by almost 50 basis points to 4.28 per cent, its first monthly rise since April.
Although US inflation has been steadily declining, and recent job reports showed the slowest hiring pace since 2020, hopes for a Fed rate cut are mixed. Some believe the rise in the 10-year bond yield does not align with expectations of a loose monetary policy.
Brent crude rose by 2.6 per cent, trading at $75.2 as oil-producing nations agreed to delay their planned production increase in December by a month. Iran’s supreme leader, Ayatollah Ali Khamenei, warned of a severe response to Israel in a speech on Saturday.
The rupee hit an all-time low against the US dollar, trading at 84.12.
Apart from US elections and monetary policy outcomes, investors will closely track the Standing Committee of National People's Congress in China this week and look for whether Chinese authorities announce any fresh stimulus to revive the slowing economy.
Four-fifths of Sensex constituents declined, with Reliance Industries dropping by 2.7 per cent and HDFC Bank falling by 1.4 per cent, making them the biggest drags on Sensex.
“We expect markets to remain subdued. This week will be crucial as many index heavyweights will announce results, which could lead to a stock-specific action,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.