Stock market Crash: Sensex tanks 1,823 points this week; check reasons here

Stock market crash: The benchmarks have clocked their fourth straight weekly losing streak, the longest since August 2023

Stock market crash today, market crash reason: Indian benchmark indices – BSE Sensex and Nifty 50 – crashed further on the final trading day of the week, on October 25. The reason for market crash today is continued selling by foreign institutional and portfolio investors (FIIs/FPIs) due to concerns related to elevated valuations of Indian equities and cheaper options available in markets such as China.

 

The BSE Sensex dropped as much as 927 to an intraday low of 79,138 on Friday, October 25, while the Nifty 50 declined 325.5 points, to 24,074 amid a weak market sentiment.

 

With this, the BSE Sensex has declined 1,822.7 points, or 2.2 per cent to sub-80,000 levels. The index had closed at 81,224.75 on Friday, October 18.  

 

 

Similarly, the Nifty 50 has shed 673.25 points or 2.7 per cent to 24,180.8 during the same period. The index had closed at 24,854.05 in the previous week's last trading day.

 

The benchmarks have clocked their fourth straight weekly losing streak, the longest since August 2023.

 

Gaurang Shah, head investment strategist at Geojit Financial Services, attributed this week's decline in the stock markets to the continued selling by FIIs since the beginning of October, coupled with muted quarterly earnings.

 

Selling by FIIs in the month of October is nearing Rs 1 trillion, which has turned out to be the highest selling by foreign investors in a month.

 

Concurring with Shah's views, Deepak Jasani, head of retail research at HDFC Securities, added that selling by foreign investors, panic selling by retail investors, coupled with muted earnings growth and a softer guidance by many companies, were the top contributors to this week's fall.

 

Given this, here are the key reasons behind the market crash today and this week:

 

FIIs remain net sellers

 

Thus far in October, till October 24, 2024, foreign portfolio investors (FPIs) have sold Indian equities worth Rs 98,086 crore, according to data from the NSDL. In contrast, domestic institutional investors (DIIs) have made net purchases worth a total of Rs 92,932 crore during the same period, offsetting some of the impact of the continued selloff by foreign investors.

 

Chief Investment Strategist of Geojit Financial Services, V K Vijayakumar, says foreign investors have continued to 'sell India and buy China' due to the high valuations commanded by stocks in the country, compared to more attractively priced stocks in markets like China and Hong Kong.

 

He also noted that these sell-offs have been further exacerbated by concerns over slowing corporate earnings during the second quarter of the current financial year due to the subdued economic activity during the quarter on the back of Lok Sabha elections 2024.

 

"The uptrend in the market is incompatible with a decline in earnings growth, leading to selling pressure with every market rise, which has shifted the near-term market sentiment to a 'sell on rally' approach," he further explained.

 

Subdued Q2 results

 

Weak earnings in Q2FY25 has also weighed on markets in recent days, as revenue growth expectations remain muted for the quarter.

 

According to ratings agency CRISIL, the revenue growth of Indian companies for the July-September quarter is projected to be between 5-7 percent year-on-year (Y-o-Y), marking the slowest growth in 16 quarters. READ MORE

 

This slowdown is largely attributed to a stagnant performance in the construction sector, which represents 20 per cent of the total revenue pie for India Inc companies.

 

Broader markets decline

 

The effects of the continued selling by foreign investors has not remained contained to the frontline indices, with broader market indices also feeling the pinch from the selloff and weak sentiment.

 

Shares of midcap and smallcap companies faced pressure for the second consecutive day, dropping about 3 per cent on the BSE during Friday's intraday trade. READ MORE

 

In the past seven trading days, the smallcap index has tanked 9 per cent, while the midcap index has plunged 7 per cent.

 

Sticky Inflation

 

Another worrying factor for the markets, analysts noted, is sticky inflation and the Reserve Bank of India's (RBI) move to keep rates steady, at least for now. Demand conditions, they believe, remain uncertain and prolonged rains and floods have affected growth in the September 2024 quarter (Q2-FY25).

 

Asia-Pacific director for IMF, Krishna Srinivasan said that most Asian central banks have some room to cut interest rates, as the beginning of the US monetary policy easing cycle has alleviated some of the concerns regarding any potential weakening in their currencies. However, he cautioned that risks to Asia's economic outlook are leaning towards the downside due to early indications of a potential decline in global demand.

 

Global markets

 

In a wider context, markets in the Asia-Pacific region were showing a mixed performance on Friday as investors looked ahead to Japan’s general election over the weekend. The Nikkei 225 was down 0.6 per cent while Hong Kong's Hang Seng was ahead by 0.5 per cent.

 

In mainland China, the CSI300 had climbed 1.71 per cent, while the Shanghai Composite was ahead by 0.59 per cent.

 

In the mother market, meanwhile, the S&P 500 had rebounded on Thursday, driven by a nearly 22 per cent surge in Tesla shares, which marked its best day since 2013 after the company posted better-than-expected Q3 results.

 

Consequently, the S&P 500 climbed 0.21 per cent, while the Nasdaq gained 0.76 per cent. In contrast, the Dow Jones had closed 0.33 per cent lower on Thursday.