Stock market today: Sensex, Nifty 50 crash; investors lose ₹9 lakh crore; what drove the Indian stock market down?

Stock market today: A strong wave of selloff engulfed the Indian stock market on Tuesday, October 22, dragging the benchmarks, the Sensex and the Nifty 50, down by over a per cent each.

The Sensex closed the day with a loss of 931 points, or 1.15 per cent, at 80,220.72, while the Nifty 50 settled at 24,472.10, down 309 points or 1.25 per cent.

The mid and smallcap segments of the market suffered even deeper losses. The BSE Midcap index ended with a loss of 2.52 per cent, while the Smallcap index crashed 3.81 per cent.

The overall market capitalisation of the firms listed on the BSE plunged to nearly ₹444.7 lakh crore from nearly ₹453.7 lakh crore in the previous session, making investors poorer by about ₹9 lakh crore in a single day.

Only three stocks- ICICI Bank (up 0.74 per cent), Nestle (up 0.10 per cent) and Infosys (up 0.04 per cent) closed in the green in the Nifty 50 index.

Among the sectoral indices, Nifty PSU Bank (down 4.18 per cent), Realty (down 3.38 per cent) and Metal (down 3 per cent) crashed the most.

Nifty Auto, Media, Consumer Durables and Oil and Gas fell over 2 per cent each. The Nifty Bank index declined 1.36 per cent, while the Private Bank index suffered a loss of 0.97 per cent.

Ajit Mishra, SVP of Research at Religare Broking, pointed out that the Nifty 50 has now corrected by around 7 per cent from its record high, reaching the critical moving average support at the 100 DEMA (day exponential moving average), i.e. 24,485 level.

"The outlook suggests further downside, particularly in the midcap and smallcap spaces. The next major support is around 24,000 on the index front, with potential resistance between 24,700 and 25,000 in case of a rebound. We recommend adjusting trades accordingly and advise against adding to losing positions," said Mishra.

What drove the share market down today?

Experts say elevated geopolitical tensions, uncertainty surrounding the US election 2024, and a sustained selloff by foreign portfolio investors (FPIs) are the key factors weighing on market sentiment.

Moreover, unimpressive September quarter earnings and the stretched valuation of the Indian stock market are also contributing to the market's downward movement.

Here are five key factors that could be behind the market fall:

Tensions in the Middle East

Tensions in the Middle East remain elevated, keeping investors on tenterhooks. According to a Reuters report, "Hezbollah said it had fired rockets at two bases near Tel Aviv and one west of Haifa on Tuesday morning just hours before US Secretary of State Antony Blinken arrived in Israel to make another push for an elusive ceasefire."

Uncertainty around US presidential election

A close fight in the US presidential election also adds to market nervousness. According to a new Reuters/Ipsos poll, "Democratic Vice President Kamala Harris held a marginal 3-percentage-point lead over Republican Donald Trump as the two stayed locked in a tight race to win the November 5 US presidential election."

The outcome of the US presidential election will affect market sentiment globally. A drastic change is not expected in India's context. However, it may have a notable impact on the India-US bilateral ties in defence, trade, and strategic sectors.

Stretched valuations

Despite the recent correction, stock market experts underscore that the current valuation of the Indian stock market remains stretched. This might have prompted profit booking.

According to Trendlyne, an equity research platform, the current price-to-earnings (PE) ratio of Nifty 50 is slightly above 23, which is above its two-year average PE of 22.2.

Sustained foreign capital outflow

FPIs have been in an aggressive selloff mode in the Indian market this month. So far in October, FPIs have withdrawn a record ₹82,479 crore from Indian equities, according to Trendlyne data, marking the highest monthly outflow on record.

The biggest reason behind this whopping foreign capital outflow is the 'sell India, buy China' strategy gaining momentum after Beijing announced several stimulus to boost its economic growth.

Foreign investors have been flocking to the Chinese markets due to a huge valuation gap with respect to the Indian market.

"There has been no respite from FIIs selling in local equities in the current month so far, which has been creating uncertainty among domestic investors. Also, foreign investors are fleeing Indian equities to invest in relatively cheaper locations such as China, especially after the stimulus announcement by its government to boost its slowing economy," said Prashanth Tapse, Senior VP (Research), Mehta Equities.

Unimpressive Q2 earnings

India Inc.'s September quarter earnings have been mixed so far, raising concerns that more downgrades could be forthcoming.

Experts point out that the rate of corporate earnings recovery in Q2 compared to Q1 is below expectation.

"We forecast a 4 per cent QoQ growth in PAT for Nifty 50. The fear of a downgrade in earnings is becoming real. We continue to be cautious about the short term due to the risk of a downgrade in corporate earnings. High global inflation is impacting operating margins. There is a plausibility for India to underperform in the global market, which is also led by a shift in funds," wrote Vinod Nair, the head of research at Geojit Financial Services.

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Disclaimer: With inputs from Reuters. The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.