Today's stock market saw the Sensex conclude over 1,000 points lower at 70,385.09 and the Nifty 50 close 346 points lower at 21,106.40.
Why did the stock market crash today? On Wednesday, December 20, in the late afternoon, bears grabbed control of D-Street, leading to huge losses for the domestic benchmark indices, the Sensex and Nifty 50. Market observers attribute the decline to profit booking and feel that the expensive mid- and small-cap stocks have long overdue a correction.
The Nifty Small cap 100 index fell 5% from the day's high to a low of 14,951, while the Nifty Midcap 100 index fell 4.5% from the day's high. Due to predictions of a rate decrease in the first half of 2024, IT businesses, who mostly get their income from the US market, have gained almost 10% in the last two weeks.
In the midst of heavy selling in the equity markets due to worries about oil supply via the Red Sea route, investor sentiment soured and the rupee closed flat against the US dollar at 83.18.
Although the US dollar index below 102 offered assistance, foreign cash outflow in the context of unpredictable crude oil prices, according to forex traders, dragged down the currency. The dollar index, which measures the strength of the US dollar relative to a basket of six other currencies, was up 0.08 percent at 101.87 on Wednesday.
Reasons Behind today's Market Crash:
Worldwide Stimuli Affected Feelings:
Following a little increase on Wall Street, Asian stocks saw significant gains on Wednesday, with investors hoping that Japan's efforts to maintain interest rates low for investors would signal similar trends throughout the rest of the world. After two days of advances, US futures increased but oil prices remained essentially steady.
A basket of peers and the US currency remained stable as traders assessed the likelihood that the Fed would soon start reducing interest rates. Following the Federal Open Market Committee (FOMC) meeting last week, which resulted in three rate reduction scheduled for 2024 and a surge in financial markets, Fed officials have been reversing course.
Making a Profit:
On Wednesday, the Nifty 50 experienced its lowest session in nine months due to investors taking profits. The pullback is "normal for markets," according to analysts.In the second half, the domestic market had a sudden and severe sell-off, even if worldwide counterparts continued to show favorable trends.
This can be attributed to investors taking profits following the previous strong surge that stretched the prices of small- and mid-cap firms. Following the recent spike in petroleum prices, investors booked profits. The least amount of drop was seen in the banking, IT, and FMCG industries, according to Vinod Nair, Head of Research at Geojit Financial Services.
Wider Markets are Falling:
Small and mid caps with a more local concentration underperformed the benchmarks, falling 3.63% and 3.27%, respectively. For small-caps, this was the worst session in three months, and for mid-caps, the worst in twelve months.
Sanjeev Hota, vice president and head of research at Sharekhan, stated, "We are unlikely to see the margin of safety in small- and mid-caps in 2024 that we witnessed in 2023, as some pockets are overstretched after the recent rally." The Nifty is up 16.82 percent, but small- and mid-caps have increased 48.06 percent and 39.72 percent in 2023 thus far, respectively, considerably exceeding the session's loss.
Growth in COVID-19 Instances:
Up to 21 instances of the COVID-19 subvariant JN.1 have been found so far in the nation. Goa has recorded 19 instances of COVID-19 sub-variant JN.1, whereas Kerala and Maharashtra have reported one case each. 16 COVID-19-related deaths have been reported in the last two weeks, and many of the deceased had significant comorbidities.
It's possible that the easy money mindset fostered by a strong primary market created the conditions for a downturn. Selling pressure may also have resulted from HNIs' limited liquidity as a result of their participation in initial public offerings (IPOs). Parth Nyati, the founder of Tradingo, stated that some investors may be using the recent increase of COVID cases as a handy justification to sell their investments.
Nifty Bank Index is Under Selling Pressure:
On the daily chart, a bearish engulfing candle formed as a result of strong selling pressure applied to the Bank Nifty index. Today, PSU bank equities had significant declines of two to four percent, including those of Bank of Maharashtra, State Bank of India, and Canara Bank.
The immediate resistance for the index is located at the 47,600-47,700 zone, and a breakthrough above this level could pave the way for further upside, targeting 48000," stated Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities. The general attitude, which advises caution and favors selling on any upward rises, is still pessimistic.
