The recent stock market crash, which saw investors lose over Rs 3 lakh crore as the Sensex and Nifty indices plummeted, can be attributed to several key factors. One of the primary drivers was the profit booking in key sectors such as IT and banking, as investors sought to lock in their gains.
Shift in Foreign Investor Sentiment
Foreign investors have been shifting their focus towards Chinese markets, driven by the significant outperformance of Chinese stocks. The Hang Seng index surged by around 18% in September, fueled by hopes of a revival in the Chinese economy following monetary and fiscal stimulus announcements by Chinese authorities.
Geopolitical Uncertainty
Geopolitical tensions, particularly the escalation of Israeli strikes across Lebanon, have added uncertainty to global markets. Although oil prices have been relatively stable due to potential supply increases, the ongoing Middle East conflict has heightened concerns over energy supplies. Rising crude oil prices, with Brent crude futures and U.S. West Texas Intermediate seeing modest increases, have further pressured the Indian equity market due to India's dependency on oil imports.
Anticipation of Key US Economic Data and Fed Speech
Investors are on edge ahead of a series of key events in the US, including a speech by Federal Reserve Chair Jerome Powell and other Fed officials. The market is closely watching for signals on the direction of monetary policy. Key data points such as job openings, private hiring numbers, and ISM surveys on manufacturing and services are also due, culminating with the US payrolls report. These indicators could influence whether the Federal Reserve opts for another significant interest rate cut.
The combination of these factors has led to a consolidation phase in the market, with investors adopting a cautious approach. The volatility index (VIX) has likely seen an increase, reflecting the heightened uncertainty and risk aversion among investors.
