The Indian stock market experienced a significant downturn on Monday, with the BSE Sensex dropping by 706 points, or 0.83%, to 84,865.79, and the Nifty50 falling by 206 points, or 0.79%, to 25,973.15. This sharp decline was driven by several key factors.
Geopolitical Uncertainty
Geopolitical tensions, particularly the escalation of Israeli strikes across Lebanon, have added significant uncertainty to global markets. This conflict has heightened concerns over energy supplies, despite oil prices being kept in check by potential supply increases. The rise in crude oil prices, with Brent crude futures up by 0.71% and U.S. West Texas Intermediate increasing by 0.63%, has further pressured the Indian equity market due to India's dependency on oil imports.
Shift in Foreign Institutional Investors (FIIs) Focus
Foreign institutional investors (FIIs) have been shifting their focus towards Chinese stocks, which have seen a massive surge of around 18% in September. This shift is driven by hopes of a revival in the Chinese economy following the announcement of monetary and fiscal stimulus measures by Chinese authorities. As a result, FIIs have been selling in the Indian market to invest in better-performing Chinese stocks.
Nervousness Ahead of Key U.S. Economic Data
Investors are cautious ahead of a series of key events in the U.S., including a speech by Federal Reserve Chair Jerome Powell and the release of important economic data such as job openings, private hiring numbers, and ISM surveys on manufacturing and services. The week will culminate with the U.S. payrolls report, which could influence the Federal Reserve's decision on whether to implement another significant interest rate cut in November. Recent data showing moderate increases in consumer spending and easing inflation pressures have raised expectations of an outsized rate cut.
Impact on Specific Stocks
The decline was led by significant losses in key stocks such as Reliance Industries, IT, and financial stocks. For instance, Biocon shares fell 2% in early trade after the U.S. FDA issued four observations to the company's facility. In contrast, PC Jeweller opened with a 5% upper circuit following the announcement of a potential stock split in its upcoming board meeting.
Market Outlook
Experts predict that the market is likely to move into a consolidation phase in the near term. Despite the current volatility, domestic institutional investors have continued to buy equities, which could help absorb the selling pressure from FIIs. Investors are advised to use dips to buy quality large-cap stocks that are fairly valued.
