Sensex, Nifty see sudden steep fall, stock investors clueless

Steep declines on key stock indices Sensex and Nifty at about 1:30 pm today baffled many stock investors. The BSE Sensex fell over 500 points within a few seconds while the NSE Nifty fell over 200 points, making investors wonder whether it was a case of basket selling .

The BSE Sensex, which was off its day's high of 73,473.05, was trading at 73,360 level, before it saw strong selling pressure that took the index to about 72,800 level within seconds. In the case of Nifty, the NSE barometer fell to 22,100 level from 22,300 within seconds. This index hit a low 22,080.95 so far. Technical charts were already reflecting weakness.

"The technical setup construes inherent weakness and brings the 22,000 mark in the vicinity of the bears. For now, a decisive breach below the 50 DEMA could further disrupt the chart structure, and 22,000, followed by the previous swing closure around 21800, is to be seen as the last hope for the bulls' comeback, Angel One said earlier today.

Shrey Jain, Founder & CEO, SAS Online said Thursday being Nifty expiry -- a lot of traders who write near to money Options hoping to profit from Options expiring worthless were in for a rude shock as they saw their accounts see drawdowns of over 5 per cent in a single day.

"Market tanked suddenly at 1:26pm and premium of ATM Put Options went up almost 10 times in a matter of seconds without giving traders opportunity to square off. No Stop losses be it individual SL or strategy level SL's, none of them proved to be useful as traders did not get an opportunity to square off as prices jumped," he said.

"Thursday saw traders experience what they work usually consider in theory to be max drawdown and use as simulation to build worst case scenarios. Think it's time for retrospection and going back to the drawing board to reconsider the risks of  option selling specially plain vanilla expiry trading," Jain said.

A post on X (formally Twitter) read: "Volatility caused by basket selling unmindful of prices! This has triggered stop losses for traders on the long side, there by adding to the liquidity of motivated sellers! Short covering opportunity for shorters."

A second person asked whether it was  technical glitch.

A third person was unsure of what happened.

Earlier today, Israeli Prime Minister Benjamin Netanyahu said his country would make its own decisions about how to defend itself. His comment came in the light of calls by Western countries for restraint. Lok Sabha Elections, which will kick off on Friday; and the ongoing earnings season are also making investors jittery. The BSE Sensex has in fact fallen over 2,300 points in the ongoing four-day selloff.

"While the economic activity improves on domestic and export fronts, rising commodity and fuel prices around general elections are a cause of concern," said InCred Equities.

This brokerage has a FY25 Nifty blended target of 24,084, suggesting an 8 per cent potential  upside from the prevailing prices. InCred said there is a 70 per cent probability of a base-case scenario, 20 per cent bull-case scenario and 10 per cent bear-case
scenario.

"Markets seems to have already baked in a better number of Lok Sabha seats for the ruling party than its 2019 performance, which is our base-case assumption. We expect market returns will be below the Nifty-50 companies’ EPS growth rate as the
valuation rerating’s upside potential is limited. We maintain sector ratings. Delay in interest rate cuts, below-expected political mandate and geopolitical issues are key downside risks," it said.

The US 10-year bond yield now hovers around 4.6 per cent level.  "More FII selling is likely, putting pressure on large-caps. This will provide opportunities to investors to slowly accumulate high quality largecaps where the margin of safety is high. In the near-term, however, heightened activity is likely in mid and smallcaps, particularly in stocks where floating stocks are low. This is a risky area," said Geojit's V K Vijayakumar.