Here's why Sensex fell 1,000 pts, Nifty slipped below 24,900 intraday today

Indian stock market crash: The Indian stock market bled heavily on Friday, with BSE Sensex closing 1,017 points or 1.24 per cent to 81,183 levels, while Nifty finishing 293 points or 1.17 per cent at 24,852 level in intraday deals.

This came after investors engaged in profit booking today following a recent rally that drove the Sensex and Nifty to new higs this week. Besides profit booking, a potential regulatory change in the futures and options segment dampened spirits of investors. According to report by Reuters, India's market regulator will tighten derivative rules to raise entry barriers and increase trading costs in an effort to curb retail speculation on risky contracts.

 

Per the report, Sebi will limit options contract expiries to one per exchange per week and nearly triple the minimum trading amount, in line with July's proposals, despite resistance from traders and brokers.

SEBI will raise the minimum trading amount to 15-20 lakh rupees, up from 5 lakh rupees, as proposed in the July consultation paper. READ MORE HERE

The index heavyweights that pulled the BSE Sensex down in terms of contribution to the index included SBI, Reliance Industries, HCL Tech, ICICI BANK, Larsen & Toubro, and Infosys falling up to 1 per cent each among others. The State Bank of India’s share price fell the most, ending 4.40 per cent lower at Rs 782.60 per share on the BSE.

This came after reports suggested that the New York-based brokerage Goldman Sachs has downgraded SBI to ‘Sell’ from ‘Neutral’. Goldman Sachs also reduced its target price for SBI to Rs 742, down from Rs 841. 

Also Read: Goldman Sachs downgrades SBI to 'Sell', slashes target price; share slips

Goldman Sachs also retained their 'Sell' rating for the Vodafone Idea stock with a target price of Rs 2.5 (earlier Rs 2.2). Reacting to this the stock tanked 14 per cent at Rs 12.91 per share in Friday's intraday trade. READ MORE HERE

Among sectoral trends, the Nifty PSU Bank was the top loser finishing 3.57 per cent lower, with Canara Bank, Bank of Baroda, Indian Overseas Bank and PNB Bank falling between 2-3 per cent.

Other sectors such as Nifty Oil and Gas, Metals, Media and Consumer durables among others also fell in the range of 1-2 per cent intraday. 

The broader markets too showed weakness, with the BSE SmallCap index falling 0.74 per cent after hitting its all time high at 56,959 level intraday. The BSE MidCap index on the other hand slumped by 1.23 per cent intraday.

Why markets are falling

According to analysts investors today resorted to profit booking after another rally in the last two weeks for the Sensex, Nifty that led it to record highs on Monday. 

"I was expecting substantial profit booking in small and mid caps over the last 2-3 months, but it hasn’t happened. Many companies still trade at high valuations without corresponding profit growth," said G Chokkalingam, founder and head of research at Equinomics Research.

Chokalingam further said that in the small and mid-cap sector, high valuations and liquidity issues are causing fluctuations. However, quality stocks in the Nifty and Sensex are showing resilience.

"The small-cap index has historically corrected every 3-4 years when valuations get stretched. We're now in the fifth year of this trend. Even if they recover, ongoing profit booking is likely to continue due to stretched valuations and liquidity draining from secondary markets,” Chokalingam added. 

V K Vijayakumar, chief investment strategist, Geojit Financial Services also advised investors to be cautious amid streched valautions and prioritise buying fairly valued quality stocks on declines.

Slowness in Global peers

The downturn in the Indian stock market today also came amidst similar slowness in global peers. Overnight in the US, all three major indexes fell as investors turn cautious on risky assets amid growing concerns about the US economic outlook. 

The S&P 500 declined by 0.3 per cent, Dow Jones Industrial Average fell 0.54 per cent. The Nasdaq Composite, despite rising as much as 1.2 per cent earlier, ended up gaining just 0.25 per cent. Meanwhile, in Asia Japan's Nikkie was trading 0.78 per cent lower while South Korea's Kospi fell 1.14 per cent. On the other hand Australia's ASX/200 rose 0.38 per cent.

According to analysts globally the near-term trend in the market will be influenced by the US jobs data to be published tonight. As the US non-farm payrolls data due today will give further clues on the Federal Reserve's quantum of rate cuts.

“There is a consensus that the Fed will cut rates in the September meeting but the extent of the cut will be determined by the jobs data. If the August jobs numbers come lower than market expectations and the unemployment rises higher than market expectations, the Fed may even cut by 50 bp. But this may not be taken positively by the market. The market may even react negatively factoring in serious growth concerns and even a hard landing scenario for the US economy may start weighing on the market. Investors can wait for this crucial data and take a call based on that,” said Vijayakumar.

However, from an Indian perspective, Vijayakumar said that the economy continues to do well and the macros are improving as indicated by the 47 per cent growth in FDI in Q1FY25 and the steady decline in Brent crude prices to below $73 now.