Sensex falls 700 points, investors lose Rs 4 lakh crore. What caused the fall?

Stock exchange indices started the session at a much lower level, which resulted in significant losses for investors.

The S&P BSE Sensex fell 814 points to 81,026 and the NSE Nifty50 was down 282 points at 24,728 at around 9:48 am. The fall resulted in a loss of over Rs 4 lakh crore in market capitalisation for all BSE-listed companies.

However, markets recovered some losses. At around 11:38 am, the Sensex was down 625.7 points at 81,241.85, while the Nifty50 was trading 192.10 points lower at 24,818.80.

The sell-off hit all major sectoral indices with Nifty Metal and PSU Bank the worst hit, falling over 2%. Meanwhile, the Nifty Smallcap100 and Nifty Midcap100, which are more focused on domestic markets, fell over 1%.

Here are some of the main factors behind the weakness of Dalal Street:

Technology Sale in US Markets

The Indian stock market followed the downtrend in US markets. US stocks fell on Thursday on weak manufacturing data, which raised doubts about the US economy and dampened optimism about potential rate cuts by the Federal Reserve. The Dow Jones Industrial Average fell 1.57% to 40,200, the S&P 500 lost 1.76% to 5,424 and the Nasdaq Composite fell 2.76% to 17,114. US stock futures continued to fall in early trading in Asia, with Nasdaq futures down 1.5% and S&P 500 futures down 0.9%.

Asian markets in red

Asian shares also fell after weaker-than-expected U.S. factory data raised concerns about a worsening economic outlook. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8% in early Asian trading. Japan’s Nikkei was heading for its worst day in more than four years, weighed down by a rising yen and uncertainty about potential domestic interest rate hikes. It last fell 4.89%, on track for its deepest daily decline since March 2020.

The Missing Earnings Trigger

The June quarter earnings season was in line with expectations but analysts note that there were no major positive surprises to drive the market. ICICI Securities said that Q1 FY25 results showed an overachievement to underachievement ratio of 1.9:1 for the NSE200 universe. While sectors like banking, financial services, IT, FMCG and oil & gas posted higher underachievement and in-line earnings, pharma, cement and metals posted underachievement.

Oil prices rise

Oil prices rose Friday amid concerns about potential supply disruptions in the Middle East. Brent crude futures gained 62 cents, or 0.75%, to $80.12 a barrel, while U.S. West Texas Intermediate crude futures rose 61 cents, or 0.8%, to $76.92. The gains are putting pressure on global inflation.

Geopolitical tension

Geopolitical tensions also weighed on sentiment. The Israeli military announced the death of Mohammed Deif, head of Hamas’s military wing, in an airstrike in Gaza, following the death of the group’s political leader, Ismail Haniyeh, in Tehran. The events contributed to a recent rise in oil prices, which are key to global inflation.

Expensive valuations

The continued rally on Dalal Street has driven valuations to extreme levels, with the market capitalization to GDP ratio now at 150%, an all-time high. Nuvama warned of below-average 5-year returns and potential downside, comparing the current situation to 2000 and 2007.

US Nonfarm Payroll

Attention now turns to the closely watched U.S. nonfarm payroll report, which is expected to provide further information on the health of the labor market and the broader economy. Rising nonfarm payroll numbers can suggest economic expansion, but they could also raise concerns about inflation.

Experts’ Opinions

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the sudden fall in the US ISM manufacturing index to 46.6 spooked markets and revived recession fears.

He noted that India’s economic growth was supported more by cash flows than by fundamentals, cautioning that without fundamental support, growth cannot continue.

Prashanth Tapse, Senior Vice President, Research, Mehta Equities Ltd, highlighted the potential volatility that Nifty faced after touching the 25,000-point mark in just 24 sessions.

He pointed to negative factors like a decline in the ISM manufacturing index and higher-than-expected jobless claims, predicting that the Nifty is likely to end on a negative bias.