Sensex crashes 1,000 points from Monday’s high; what drags the Indian stock market?

The Indian stock market experienced notable volatility on Monday, October 7, with the benchmark Sensex plunging nearly 1,000 points from its intraday high amid a broad-based selloff. The Sensex opened at 81,926.99 against its previous close of 81,688.45 and rose nearly 450 points to 82,137.77. The index, however, erased all gains and tanked 998 points from the intraday high level to touch the level of 81,139.62 on the downside. Around 11:30 am, the index traded 70 points lower at 81,618.

The Nifty 50 opened at 25,084.10 against its previous close of 25,014.60 and touched its intraday high and low of 25,143 and 24,798.65, respectively. The volatility index India VIX jumped over 6 per cent during the session.

What drags the Indian stock market?

The Sensex and Nifty 50 have remained red for six consecutive sessions, shedding nearly 5 per cent. The market’s decline has been largely driven by significant selloffs from foreign portfolio investors (FPIs).

According to NSDL data, FPIs offloaded Indian equities worth ₹27,142 crore in just the first three days of October. Much of this capital is being directed to China, following the country’s recent measures to support its economy and financial markets. The shift is driven by the attractive valuations in the Chinese market compared to the premium valuations in the Indian market.

Chinese markets have seen perplexing gains in the last few sessions. Over the last week, the Shanghai Composite Index has jumped 21 per cent, and the Hang Seng index has surged over 15 per cent.

“The massive FPI selling is the primary factor behind the market’s fall. FPIs have sold more than ₹40,000 crore in the last four days. The Hang Seng index is up by 32 per cent in one month. Big money is moving from India to China. This is abnormal. Markets tend to overreact. This is ‘sell India and buy China’. How long it will last remains to be seen,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Apart from the FPI selling, geopolitical tensions and exit poll results of the Haryana and J&K elections have also contributed to the market’s poor show.

“Markets are trading under pressure as investor sentiment turned sour following exit poll results of Haryana and J&K elections, which showed the BJP lagging behind its peers. Also, the ongoing geopolitical tensions in the Middle East and the constant selling from the FPIs are keeping investors on their toes,” said Manish Chowdhury, the head of research at StoxBox.

Anshul Jain, the head of Research at Lakshmishree Investment and Securities, also pointed out that the immediate reason for the weakness on Dalal Street can be attributed to the double blow predicted by the Assembly Exit Polls for Haryana and Jammu & Kashmir. However, the Middle East tension caused by the Israel-Iran war and developments in China is still pulling down the global markets, including the Indian stock market.

The road ahead

Experts remain positive about the market’s medium—to long-term prospects due to the durable growth of the Indian economy and the substantial influx of domestic investors.

In the near term, experts expect a bounce back as the market looks oversold.

According to Chowdhury, the markets have corrected sharply in the past week, and there should be a reversal in the short term.

“The reversal’s sustenance would depend on the outcome of the RBI policy meeting this week and corporate earnings going ahead,” said Chowdhury.

Sumeet Bagadia, Executive Director at Choice Broking, said the Sensex has crucial support at 81,000.

“If the 30-stock index breaches below this base, we can expect more sharp selling soon. Likewise, the Nifty 50 index has a strong base at 24,750. Falling below this support would mean the 50-stock index going down towards the 24,200 range. The Nifty Bank index has immediate support at 51,000 and crucial support at 50,250,” said Bagadia.

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