Sensex, Nifty crash; fear index shoots up 23%: Key factors weighing on the market

Indian equity benchmarks came under sharp selling pressure in afternoon trade on Thursday, amid elevated crude oil prices, rising US Treasury yields, renewed geopolitical concerns and the potential impact of the Insurance Regulatory and Development Authority of India's (Irdai's) proposed reforms.

The weakness was broad-based, with all major sectoral indices trading in the red. Banking and financial stocks were among the top drags.

The 30-share BSE Sensex pack slumped 1,247.71 points or 1.67 per cent to close at 73,580.54, while the NSE Nifty50 pack declined 383.70 points or 1.64 per cent to settle at 23,063.10.

The broader market also came under pressure, with Nifty Midcap100 sliding 2.25 per cent and Nifty Smallcap100 declining 1.53 per cent.

India VIX, a measure of expected volatility in the equity market, spiked 22.76 per cent to 12.70.

The combined market capitalisation (m-cap) of BSE-listed companies fell to Rs 480.99 lakh crore from Rs 483.54 lakh crore in the previous session, marking a decline of around Rs 2.55 lakh crore in Thursday's session.

Here's what is weighing on the market:

Banking, financial stocks tumble on Irdai's proposed norms

JM Financial has flagged potential implications for select banks and non-banking financial companies (NBFCs) from Irdai's proposed distribution reforms.

The insurance regulator's consultation paper proposes lower Expenses of Management (EOM) caps for life and general insurers, along with segment-level commission caps that were eliminated from FY24. The draft also includes specific observations on the bancassurance channel.

Among banks, JM Financial's assessment of disclosures shows that Ujjivan Small Finance Bank Ltd, AU Small Finance Bank Ltd, IDFC First Bank Ltd, Bandhan Bank Ltd, DCB Bank Ltd and Axis Bank Ltd have a relatively higher contribution from insurance fee income.

In the NBFC segment, L&T Finance Ltd, Home First Finance Company India Ltd, Cholamandalam Investment and Finance Company Ltd, Bajaj Finance Ltd, Aadhar Housing Finance Ltd, Mahindra & Mahindra Financial Services Ltd and HDB Financial Services Ltd have a higher contribution from insurance fee income, JM Financial said.

Rising crude oil prices, US yields

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the sharp rise in Brent crude oil prices towards $106 a barrel and the increase in the US 10-year bond yield were weighing on the market.

"As long as these two global headwinds remain, the prospects of a smart recovery in the market appear remote," Vijayakumar said.

Global market cues

Devarsh Vakil, Head of Prime Research at HDFC Securities, said the US 10-year Treasury yield has risen to its highest level since 2007. "US equities fell sharply, snapping record runs, as the 10-year Treasury yield broke above 5 per cent," he also said.

At last check, the US 10-year Treasury yield was around 5.13 per cent, while the two-year yield stood at around 4.89 per cent.

Vakil added that global sentiment had weakened after Wall Street ended lower amid rising US Treasury yields and an increase in the Dollar Index, putting pressure on emerging-market sentiment.

"Renewed uncertainty surrounding the US-Iran conflict has also contributed to risk aversion," he further said.