The Indian stock market has recently experienced a share market crash, with the Sensex plummeting by 4,100 points over the last five trading sessions. This decline is largely attributed to the escalating tensions surrounding the Iran-Israel war and China’s economic stimulus measures. The resulting panic has prompted Foreign Institutional Investors (FIIs) to withdraw a staggering ₹32,000 crore, raising alarm over peak valuations and pushing the Nifty below critical support levels.
The share market crash has left a gaping ₹16 lakh crore loss for investors on Dalal Street. As geopolitical conflicts unfold and economic policies shift, the Indian stock market is feeling the strain, reflecting a bearish sentiment among traders and investors.
Market Decline: Key Events and Figures
On Thursday, the Sensex experienced a dramatic drop of 1,769 points during the session, ultimately closing 809 points lower. Meanwhile, the Nifty struggled to maintain its support at the 25,000 mark, ending nearly 1% down. Since September 27, the Sensex has seen a cumulative decline of 4,148 points, resulting in a reduction of ₹15.9 lakh crore in the combined market capitalization of BSE-listed stocks, now standing at ₹461.26 lakh crore.
This week marks the worst performance for both the Sensex and Nifty since June 2022, with losses recorded at 4.3% and 4.5%, respectively. Such steep declines signal serious concerns about the overall market health and investor sentiment.
FII Outflows and China’s Stimulus Impact
The exodus of Foreign Institutional Investors is particularly notable, as they had previously flagged concerns regarding peak valuations in what appeared to be an overheated bull market. The announcement of China’s stimulus measures further accelerated this outflow, as FIIs redirected their investments towards China, where stocks are trading at more attractive valuations.
The situation escalated following Iran’s launch of nearly 200 ballistic missiles toward Israel in response to an Israeli airstrike in southern Beirut last Friday. This geopolitical escalation has made foreign investors increasingly cautious about investing in emerging markets, compounding the already negative sentiment toward the Indian stock market.
Over the last four trading sessions leading up to Thursday, FIIs withdrew nearly ₹32,000 crore from Dalal Street, according to provisional market data. The outflow on Thursday alone reached ₹15,243 crore, marking the highest single-day withdrawal by foreign investors in history.
As a reaction to these developments, money managers across Asia have been reducing their long positions to fund investments in China, following the government’s announcement of several growth-stimulating measures.
In this tumultuous environment, Nifty ended Thursday’s session below its 20-day Exponential Moving Average (EMA) support level of 25,556, which has signaled a bearish trend. The break below the immediate support level of 25,150 has exacerbated the selling pressure in the market.
Will the Crisis Continue?
Despite the unfolding crisis, not all investors are fully embracing the narrative surrounding China’s growth potential. The Chinese market has a history of experiencing erratic start-stop rallies over the last two to three years. Rajiv Jain of Florida-based GQG Partners reflected on a similar “reopening trade” that occurred in late 2022, which lost momentum within a few months.
“They’re basically a trade. That’s a nice trade. But can you really invest in it for three years, five years?” Jain remarked in an interview with Bloomberg.
Back on Dalal Street, there have been six instances of corrections in Nifty throughout 2024, each resulting in falls of approximately 5-6%. Dharmesh Shah of ICICI Direct notes that in most of these corrections, Nifty found support at the 50-day EMA.
“In the current context, if you look at Nifty making a high of around 26,300, we have already corrected 4.5% from that high, with almost five to six trading sessions completed. Price-wise and time-wise, Nifty seems to be finding support at the 50-day EMA. We expect this support to hold. If it eventually breaks, it doesn’t look overly negative from the current levels,” Shah stated.
The technical analyst forecasts a potential recovery in Nifty towards the 25,600-25,700 range in the upcoming trading sessions.
Domestic Investors Prepare for Opportunities
In the midst of this share market crash, several domestic investors—including High Net-Worth Individuals (HNIs), Portfolio Management Services (PMS) funds, and mutual funds—have been stockpiling cash to seize opportunities in the market dips. Mutual funds alone held a cash reserve of ₹1.86 lakh crore at the end of August, with cash holdings as a percentage of total Assets Under Management (AUM) at a five-year high.
As the market looks forward, attention will be focused on the forthcoming Q2 earnings season, which kicks off next week. Investors will also be keenly observing the outcomes of assembly elections in Haryana and Jammu and Kashmir, which could further influence market dynamics.
In conclusion, the current share market crash has left investors anxious and uncertain about future performance. However, with signs of potential recovery and domestic investors prepared to act on dips, the market may yet find a path forward amidst the prevailing turmoil.
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