Sensex tumbles 1,800 points from day’s high: Six factors that led to bloodbath on D-Street

Benchmark indices crashed in the afternoon session today after giving up all of their early gains. Sensex slumped 1,070 points to 70,368 and Nifty lost 334 pts to 21,237.  Sensex crashed 1,805 points from day’s high to 70,234 level today. In the morning session, Sensex hit a high of 72,039. Around Rs 8 lakh crore of investor wealth was wiped out in the afternoon session. Capital goods, banking, consumer durables and metal shares were the top sectoral losers with their indices falling 1342 points, 1202 points, 1213 points and 1059 pts, respectively on BSE.

The BSE and oil and gas index too crashed 1039 points to 24,233.  Market breadth was negative with 2992 stocks trading lower against 908 stocks falling on BSE. 145 shares were unchanged. Market cap of BSE-listed firms fell to Rs 365.17 lakh crore today.

Here’s a look at factors that led to the market crash today.

LTCG factor comes into play

Ahead of the Union Budget on February 1, investor sentiment turned cautious on Tuesday. BNP Paribas said any announcements with regards to changes in taxation policy, especially on long-term capital gains (LTCG) on equities would be sentiment negative.

Midcap, smallcap shares bleed

Midcap and smallcap indices on Dalal Street crashed 1,112 pts and 1201 pts, respectively.  The crash in the indices broadly contributed to the market correction today.

High valuations

The Indian stock market was trading at high valuations, analysts had said and could see correction from record high levels. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “Investors should also remember that sentimental impact cannot last long. Tensions in West Asia and the Red Sea are areas of serious concern. If something goes wrong, the market will be impacted since valuations are high. Therefore, even when optimistic, investors should be cautious."

Technical aspect

Nifty has witnessed the emergence of an engulfing scenario, with price submerging major portions of the previous week’s move on the weekly scale.

Nuvama Institutional Equities said, "This reveals selling pressure, which may persist in the upcoming sessions. While the fragile bias continues to haunt Nifty around the 22,000 mark, the support area of 21,500 -21,450 keeps the underlying momentum upbeat, Nuvama said.

Sebi on ownership norms 

Markets regulator Sebi is likely to impose tightened ultimate beneficial ownership norms for overseas investors with effect from February 1. However, foreign banks and a section of offshore fund managers have been calling for easing of the rules ahead of the deadline, according to a ET report.

Selling by FIIs  

FIIs have become net sellers in Indian stocks to the tune of over Rs 23,583 crore in January till date. On the other hand, domestic institutions, led by MFs, have been trying to offset the impact of the sell-off. They bought stocks worth Rs 10,274 crore in January till date.

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