Bear attack at Dalal Street: Investors lose Rs 12.79 lakh crore; key factors triggering the selloff

Domestic equity markets crumbled on Monday after opening with marginal gains. A combination of higher bond yields and risk of a wider conflict in the Middle East soured trading sentiment across the globe at the start of a week, while traders awaited earnings from some mega-cap earnings and key data, and pushed global shares down to seven-month lows.

BSE's Sensex crashed more than 825 points, or 1.26 per cent, to settle at 64,571.88, while NSE's Nifty50 tumbled about 261 points, or 1.34 per cent, to end the day at 19,281.75. Broader markets were under severe pain as BSE midcap index crashed about 3 per cent, while BSE smallcap indices cracked over 4 per cent. However, fear gauge India VIX inched up marginally to 10.91-levels.

"Despite the healthy performance of private banks and marginal reductions in oil prices, investor confidence remained pessimistic, and a widespread consolidation persisted in the domestic markets. The global markets echoed the same trend, as the unrest in West Asia has the potential to spiral further, said Vinod Nair, Head of Research at Geojit Financial Services.

"Amid worries over moderation in growth on account of elevated interest rates and higher energy prices, heightened risk aversion was witnessed in the Indian mid- & small-cap space, banks, metals, and energy stocks. While a period of consolidation in the short term seems certain, the extent of this phase will be shaped by global factors," he said.

Investors lost a notional wealth of Rs 12.79 lakh crore from their kitty as the total market capitalization of all BSE listed companies crashed to Rs 311.33 lakh crore at close on Monday from Rs 324.12 crore on Friday, October 20. Here are the key factors that weighed on the market sentiments.

Rise in the US bond yields
The benchmark 10-year Treasury yield rose above 5 per cent and to its highest since 2007 on Monday, as a roaring US economy led investors to expect interest rates to stay high for an extended period. The 10-year Treasury yield reached 5.012 per cent,the latest sign of the scale of the global bond sell off, driven by rising government debt increasing supply of bonds around the world.

Geopolitical concerns
The war in the Middle East region was also high on traders' minds for the day. The risk of Israel's war with the militant group Hamas becoming a wider regional conflict is keeping markets on edge, as Israeli air strikes battered Gaza early in the day. Furthermore, the United States dispatched more military assets to the region. Clashes on the Israel border with Lebanon intensified.

Benchmark indices witnessed severe pounding in the last hour trades as simmering geo-political tension in the Middle East triggered a wave of selling pressure and prompted investors to offload equity, said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities. "The Israel-Hamas conflict has increased further and led to weak sentiment in global equities."

Economic Indicators
Investors are waiting for several events this week, including the European Central Bank meeting, and the release of US GDP data and the Federal Reserve's preferred inflation gauge. Federal Reserve Chair Jerome Powell's comments on the US economy's strength and hot labour markets might warrant tighter financial conditions dented the sentiments.

Consistent FPI outflows
Foreign portfolio investors continue to pull out money from the Indian equity markets. After dumping equities worth Rs 14,768 crore in the month of September 2023, overseas investors have pulled out Rs 10,345 crore from the local shares, according to the data from NSDL.

FPIs continued their selling spree in October, while the outflows from the cash market were higher. FPIs have been selling across the board in sectors like financials, power, FMCG and IT. Selling was subdued in automobiles and capital goods. They were buyers in telecom, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Fall in global markets
European shares fell on Monday, as the Israel-Hamas war kept investors on edge at the start of a week packed with key data releases, earnings reports and the European Central Bank's (ECB) policy meeting. The MSCI All-World index was last down at its lowest since late March 2023, when turmoil that had gripped the global banking sector started to subside.

Rise in Dollar index
The upsurge in the US Treasury yields firmed the US dollar index and weakened the other currencies. Japan's yen weakened briefly on Monday to the 150-per-dollar level, as elevated US Treasury yields kept the dollar supported across the board. The dollar index firmed a fraction to 106.23, with the euro down 0.1 per cent at $1.0586, and sterling flat at $1.21620.

Technical factors
Jatin Gedia – Technical Research Analyst at Sharekhan said that Nifty has breached the previous swing low of 19,333 it touched in first week of October and has closed below that indicating a breakdown. Weekly, daily and hourly momentum indicators have a negative crossover which is a sell signal.

"Thus, both price and momentum indicators are suggesting a further decline. On the downside the Nifty is likely to drift towards 19,000 from a short-term perspective. On the way up 19,500 - 19530 shall act as an immediate hurdle zone as per the principle of role reversal," he said.

Also Read: Kotak Mahindra Bank: New external CEO, likely acquisition are overhangs, say analysts