Sensex settles 1,250 pts lower, Nifty ends below 23,100: 7 key factors behind market crash

The benchmark indices Sensex and Nifty tumbled over 1.5 percent on Thursday, dragged by a rise in the US benchmark Treasury yield to its highest level since 2007 and a surge in crude oil prices above USD 100 per barrel.

Selling in banks and NBFC stocks, along with weak global market trends, also weighed on investor sentiment.

The Sensex settled 1,247.71 points or 1.67 percent lower at 73,580.54, while the broader Nifty declined to 23,063.10, down 383.70 points or 1.64 percent.

All major Nifty sectoral indices declined. The broader Nifty Smallcap 100 and Nifty Midcap 100 fell 1.53 percent and 2.08 percent, respectively.

Key factors behind market decline

1) Rising Treasury yield: US business activity accelerated to its strongest level in more than five years in September, driven by a surge in new orders. The data pushed the benchmark 10-year US Treasury yield to its highest level since 2007, while markets raised expectations of another rate hike.

Pranay Aggarwal, Director & CEO, Stoxkart, said, “The weakness in Indian equities reflects a combination of global and domestic pressures, particularly elevated crude oil prices, rising global bond yields and expectations that interest rates could remain higher for longer. For an oil-importing economy like India, crude above $100 a barrel raises concerns around inflation, the import bill and corporate input costs, while higher global yields can influence foreign institutional flows and keep the rupee under pressure.”

2) Rise in crude: A rebound in crude oil prices also dented sentiment, driven by renewed uncertainty over US-Iran diplomatic ties. Brent crude hovered around USD 102.5 a barrel on Thursday after gaining 4 percent in the previous session.

Higher oil prices are detrimental to the world’s third-largest importer, India, as they add to the import bill, intensify inflationary fears and drag corporate profitability.

“The sharp spike in Brent crude above USD 102 and the US 10-year bond yield rising to 5.11 percent will weigh on the market. So long as these two global headwinds remain, the prospects of a smart recovery in the market appear remote,” V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said.

3) Weak global cues: US equities fell sharply in the previous session after stronger-than-expected business activity reinforced expectations that the US Fed may need to tighten monetary policy further.

MSCI’s gauge of Asian equities fell 0.4 percent, while Hong Kong’s Hang Seng declined 0.5 percent and the Shanghai Composite slipped 0.4 percent.

4) Profit booking: Profit booking was seen at higher levels as investors moved to sell shares after the recent gains. On Wednesday, the Sensex climbed 299.17 points, or 0.4 percent to settle at 74,828.25. The Nifty was up 117.80 points, or 0.5 percent to end at 23,446.80.

“A rebound in crude oil prices amid renewed uncertainty surrounding the US-Iran diplomatic process, coupled with a rise in US Treasury yields, is likely to prompt some profit-taking after the market’s recent gains. WTI crude is currently trading around USD 91–92 a barrel, while Brent has climbed back above the USD 100 mark. Wall Street closed sharply lower, while Asian markets are showing mixed trends in early trade,” Ponmudi R, CEO of Enrich Money, an online trading and wealth-tech firm, said.

5) Decline in rupee: The rupee stayed weak, sliding 11 paise to 95.84 against the US dollar, as geopolitical uncertainties led to a sharp surge in crude oil prices and pushed US bond yields as well as the greenback higher.

At the interbank foreign exchange market, the rupee opened at 95.84 against the American currency and stayed under pressure, registering a loss of 11 paise from its previous closing level.

6) Rise in India Vix: The fear gauge, or volatility index, rose over 21 percent to 12.56. A rise in the India VIX indicates higher expectations of market volatility and reflects increased caution among investors.

7) Decline in financials: Banks and insurers led losses after the country’s insurance regulator proposed overhauling commission rules to cap payouts, link them to product complexity and spread life insurers’ commissions beyond a policy’s first year.

Banks and financials fell up to 2 percent. PB Fintech and Turtlemint Fintech tumbled up to 23 percent. Axis Bank and HDFC Bank lost 3.5 percent and 1.3 percent, respectively.

“The IRDAI’s proposals are likely to weigh on insurance industry growth, with PB Fintech appearing most exposed,” said Macquarie analysts, adding, “Axis Bank and HDFC Bank remain more exposed among banks than ICICI and Kotak.”

Among stocks, Bharat Dynamics gained 1.4 percent after the country’s Defence Ministry signed an Rs 811 crore order with the company for anti-airfield weapons.

Technical Outlook 

Anand James, Chief Market Strategist at Geojit Investments, said “Despite positivity throughout yesterday raising hopes of a vertical spike aiming 23760 or more, the 23490 region continued to keep a lid on upsides. Also, the trading range remained the same as the previous two days with VIX falling over 22% from the month’s peak. This raises the odds of surprise rise in volatility. Inability to float above 23490 or slippage past 23260 will raise the odds for a drop to 22600-21800, but downside marker for such a view may be placed near 23116 for now.”

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