On October 4, 2024, the Indian stock market faced a sharp selloff, marking its worst weekly performance in over two years. The Sensex and Nifty 50 extended their losses for the fifth consecutive session, with the Sensex falling 808.65 points to close at 81,688.45, and the Nifty 50 dropping 235.50 points, settling at 25,014.60. Both indices recorded a weekly loss of about 4.5%, making it their steepest drop since June 2022.
This volatility comes after three weeks of positive market momentum, but global and domestic factors have turned investor sentiment decidedly bearish. The total market capitalization of Indian stocks has plummeted by a staggering ₹13 lakh crore over the past five trading sessions.
5 Key Reasons Behind the Stock Market Crash
1. Geopolitical Tensions: Israel-Iran Conflict Raises Crude Oil Concerns
The escalating conflict between Israel and Iran, along with their respective allies, has severely shaken global markets. The possibility of oil supply disruptions from the Middle East—one of the world’s largest oil-producing regions—has sent crude oil prices soaring. For India, a major net importer of oil, this spells trouble.
Higher crude prices increase inflationary pressures and put additional strain on India’s current account deficit. As oil prices rise, the cost of transportation, manufacturing, and overall production across various sectors will likely increase, hurting corporate profitability.
2. Foreign Institutional Investor (FII) Outflows
Aggressive foreign outflows have been one of the most significant contributors to the market crash. On October 3, FIIs sold shares worth ₹13,000 crore, one of the largest single-day outflows in recent memory. Much of this capital is being redirected towards China, where the government’s recent stimulus measures have attracted global investors.
The continuous selling by FIIs has resulted in a massive loss of liquidity in Indian markets, further contributing to the downward spiral. As foreign investors pull out, the market loses a major source of capital inflow, putting additional pressure on domestic institutional investors to prop up the markets.
3. Weak Domestic Sentiment
Despite strong fundamentals in some sectors, global uncertainty has weakened domestic sentiment. Concerns over the impact of rising crude prices and a potential global demand slowdown have made domestic investors cautious. Additionally, the volatility in mid-and small-cap stocks, which are more sensitive to market sentiment, has exacerbated the overall decline.
The S&P BSE Mid-Cap and Small-Cap indices dropped by 2.5% and 3.2% over the past week. This signals that domestic retail investors, who typically invest in these segments, are losing confidence as volatility rises.
4. Reliance Industries’ Steep Decline
One of the most significant contributors to the Nifty’s losses this week was Reliance Industries, which shed 9.2% over the past five sessions. As the second-heaviest stock on the Nifty 50, Reliance’s sharp decline has a disproportionate impact on the broader market index.
Investors are growing wary of Reliance’s exposure to oil and gas, especially given the current global uncertainty around crude supply. Additionally, concerns over the company’s future earnings amid rising costs and potential margin pressure have caused significant selling pressure.
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5. Profit-Taking After Record Highs
The Sensex and Nifty 50 hit record highs on September 27, with investors taking advantage of strong market momentum. However, profit-taking has been a natural reaction after such a strong rally, especially in the face of rising global risks.
The Sensex and Nifty have each dropped over 5% from their record highs. Investors who had made significant gains during the recent bull run are now locking in profits, further contributing to the market’s decline.
Market Impact: ₹13 Lakh Crore Investor Wealth Wiped Out
In just five trading sessions, Indian stock markets have seen a steep erosion in investor wealth. The total market capitalization of BSE-listed companies fell from ₹479 lakh crore last week to ₹466 lakh crore this week, wiping out ₹13 lakh crore of value. This massive loss reflects the extent of the bearish sentiment that has gripped the markets.
The sharp drop in the market has also led to margin calls for several investors, forcing them to liquidate their holdings, which only amplifies the downward pressure.
What Lies Ahead for Indian Markets?
With the Israel-Iran conflict still unfolding, predicting when stability will return to the markets is difficult. The ongoing volatility is expected to persist until there is more clarity on global oil supply and geopolitical tensions.
At the same time, market experts are advising caution. Investors should avoid panic-selling and focus on long-term fundamentals rather than reacting to short-term volatility. Defensive sectors such as pharmaceuticals and IT may offer some respite, given their lower exposure to rising oil prices and global uncertainty.
Disclaimer
The information provided in this article is based on current market trends and research. Investors are advised to perform their own due diligence or consult financial advisors before making any investment decisions. Market conditions can change rapidly, and past performance does not guarantee future results.
