On Tuesday, Indian benchmark indices witnessed a significant downturn, with the Sensex dropping around 1,050 points and the Nifty ending below 21,250. The broader markets were not spared either, experiencing a decline of up to 3%, while the India VIX spiked over 7.6%. Several factors contributed to the market’s downward trajectory, transforming what initially seemed like a positive day into a one-way slide.
Factors Contributing to the Market Decline
SEBI’s New Ownership Norms for FIIs:
The Securities and Exchange Board of India (SEBI) introduced new ownership norms for Foreign Institutional Investors (FIIs), causing concern among investors. The tightened ultimate beneficial ownership norms set to take effect from February 1st added to the selling pressure, particularly among FIIs.
Valuation Concerns and Muted Q3 Earnings:
High valuations in select market segments, coupled with muted Q3 earnings, impacted investor sentiments. Profit booking ahead of the budget added to the cautious approach, leading to a substantial decline in the market.
Global and Economic Uncertainties:
Despite positive momentum in global markets, concerns about delayed rate cuts in the US due to inflationary pressures led to discomfort among investors with current market valuations. This global economic uncertainty contributed to the selling pressure in Indian markets.
The BSE Sensex plummeted by 1,053.10 points, or 1.47%, settling at 70,370.55, while the Nifty50 nosedived 333 points, or 1.54%, to end at 21,238.80. Broader markets, represented by the BSE midcap and smallcap indices, saw a significant decline of about 3%, reflecting the extent of the market sell-off.
Investors collectively lost Rs 8.37 lakh crore of notional wealth, as the total market capitalization of all BSE-listed companies dropped to Rs 366.03 lakh crore compared to the previous trading session.
With the exception of the Nifty pharma and healthcare indices, all other sectoral indices settled in the red. The Nifty media index was notably down about 13%, while the Nifty realty index experienced a significant crash of 5.3%. The Nifty PSU Bank index also witnessed a decline of 4.1%.
In the Nifty50 pack, IndusInd Bank, Coal India, SBI Life Insurance Company, and ONGC were among the laggards, each shedding more than 4.5%. On the flip side, Cipla, Sun Pharma, and Bharti Airtel were among the gainers, providing some relief in an otherwise bearish market.
Analysts suggest that the recent sell-off in Indian markets could be attributed to offloading by FIIs in the past few sessions, mixed earnings outcomes, and concerns about higher valuations. As markets navigate the ongoing earnings season, stock-specific actions are anticipated, with investors closely monitoring developments in the global economy and geopolitical tensions.
The sharp decline in Indian markets on Tuesday underscores the sensitivity of investors to a confluence of domestic and global factors. The market’s reaction to SEBI’s new ownership norms, coupled with valuation worries and earnings uncertainties, has set the stage for cautious trading in the days to come.