Sensex sinks 1,150pts, Nifty dips below 23,900: What's behind market crash?

Stock market crash: The key benchmarks – Sensex, Nifty faced another bear attack on Thursday, with the BSE Sensex crashing 1,162 points or 1.44 per cent to its intraday low of 79,020, while the NSE’s Nifty50 plunging 328 points or 1.35 per cent at 23,870 in intraday trade. 

 

The drop in the Indian stock market came amid a similar downturn in the US as well Asian markets after the US Federal Reserve delivered its third consecutive rate cut but signaled a slowdown in future reductions, leaving investors jittery.

 

On Wednesday, the Fed cut its benchmark interest rate by 25 bps to a target range of 4.25 per cent-4.5 per cent. However, its updated guidance tempered optimism, indicating only two rate cuts in 2025, down from four projected in September.

 

 

Meanwhile, foreign institutional investors (FIIs) have continued selling Indian equities, with FIIs selling shares worth Rs 1,316.81 crore on December 18. Market pundits say that the dollar index rising above 108 and the 10-year bond yield spiking to 4.52 per cent are clearly negatives from the perspective of FII fund flows. But this is likely to be only temporary.

 

Further analysts believe that the markets with high valuations are getting spooked as reality is falling short of its expectations and US Fed’s guidance of fewer rate cuts in 2025, is one such instance that disrupted market expectations.

 

“Even though the  rate cut of 25 bp was in tune with the market’s expectation, the indication of only two cuts of 25 bp each in 2025 against market expectation of three or even four cuts spooked the market resulting in a sharp sell-off in Wall Street. The Fed chief’s comments regarding the economy and the labour market are, in fact, positive, suggesting a resilient US economy. But always the market gets spooked when the reality falls short of expectations,” said Dr V K Vijayakumar, chief investment strategist, Geojit Financial Services.

 

Vijayakumar further said that sharp cuts in the market today will provide opportunities for investors to buy.  Long-term investors, who can ignore short-term gyrations, should focus on fairly valued large-caps which will provide buying opportunities for investors who are prepared to wait, he said. 

 

The index heavyweights that pulled the BSE Sensex down on Thursday in terms of contribution included HDFC Bank contributing 173 points, Infosys (150 points), ICICI Bank (112 points), and  Reliance Industries (98 points).

 

26 out of 30 bluechip stocks were in the red zone on the BSE Sensex with Infosys being the top loser falling 2.82 per cent, followed by HCL Tech (down 2.1 per cent), Asian Paints (down 2 per cent), Tata Steel (down 1.9 per cent), Tech Mahindra (down 1.8 per cent) and Kotak Mahindra Bank (down 1.7 per cent). 

 

That said, ITC, HUL, Bharti Airtel and Sun Pharma rose up to 1 per cent on the BSE Sensex.  Nifty IT leads fall

 

Among sectoral trends all sectors were trading in negative with the IT under severe pressure falling 2.11 per cent in intraday deals. Individually, LTIMindree fell sharply by 4.35 per cent, followed by Wipro (down 3 per cent), Mphasis (down 2.7 per cent) and Persistent Systems (down 2 per cent) among others. 

 

Apart from Nifty IT index, others sectors that faced pressure included Nifty Metal, down 1.76 per cent, and Nifty PSU Bank, falling 1.65 per cent. Moreover, Nifty Pharma, Nifty Private Bank, Nifty Financial Services, Nifty Healthcare and Nifty Consumer durables were also trading in red in intraday deals. 

 

Moreovwe, in line with benchmarks broader markets too sustained losses with the BSE SmallCap index down 1.01 per cent at 55,928 level intraday, while the BSE MidCap index advanced by 1.07 per cent at 47,016 intraday.

 

Tech levels to watch

 

According to technical analysts over the past four trading sessions, Nifty has corrected 3.7 per cent, reflecting heightened selling pressure. The recent fall has also pushed Nifty below the neckline of the inverse head and shoulders pattern, a key technical level that previously indicated bullish momentum. This breach suggests a shift in sentiment.  "Looking ahead, the chart indicates a critical support level near 23,800, where buyers might step in to stabilize the index. This zone could act as a cushion, preventing further downside if market sentiment improves. On the upside, resistance levels are expected at 24,200, followed by 24,500," said Jigar S Patel, senior manager - technical research, Anand Rathi Shares and Stock Brokers.  

Global markets 

 

Wall Street reacted negatively to the hawkish Fed commentary, with the Dow Jones falling 2.58 per cent for its tenth straight session, the S&P 500 dropping 2.95 per cent, and the Nasdaq declining 3.56 per cent.  

 

Asian markets also traded lower, with Japan’s Nikkei down 0.80 per cent, China’s CSI 300 slipping 0.47 per cent, Shanghai flat with a slight negative bias, and Hong Kong’s Hang Seng falling 1.28 per cent following a 25 bps rate cut by the Hong Kong Monetary Authority.