Stock market today: Sensex, Nifty 50 fall over 1% each; 5 factors that dragged the Indian stock market today

Stock market today: Indian stock market benchmarks- the Sensex and the Nifty 50- plunged over 1 per cent each on Friday, August 2, on an across-the-board selloff amid weak global cues.

Sensex opened at 81,158.99 against its previous close of 81,867.55 and fell over 1 per cent to the level of 80,868.91. On the other hand, the Nifty 50 opened at 24,789 against its previous close of 25,010.90 and declined over 1 per cent to hit the level of 24,686.85.

Sensex finally closed 886 points, or 1.08 per cent, lower at 80,981.95, while the Nifty 50 ended with a loss of 293 points, or 1.17 per cent, at 24,717.70.

The selloff was broad-based as the mid and smallcap indices on the BSE fell 1.19 per cent and 0.58 per cent, respectively. The overall market capitalisation of the firms listed on the BSE dropped to nearly ₹457 lakh crore from nearly 462 lakh crore in the previous session, making investors lose about 5 lakh crore in just one session.

As many as 42 stocks ended in the red in the Nifty 50 index. Shares of automakers Eicher Motors, Tata Motors and Maruti ended as the top losers in the Nifty 50 index.

The volatility index India VIX jumped over 11 per cent to 14.41, indicating rising nervousness among market participants.

Among the major sectoral indices, Nifty Realty plunged 3.5 per cent, while Auto and Metal cracked nearly 3 per cent each. The IT index suffered a loss of over 2 per cent.

The Nifty Bank index declined 0.41 per cent, while the Private Bank index slipped 0.39 per cent. On the other hand, the PSU Bank index suffered a strong loss of 1.72 per cent.

Why did the Indian stock market fall today?

Here are five factors that seem to have triggered a profit booking in the market:

1. Weak global cues

Weak global sentiment spilt into the Indian stock market. Top markets in the US and Asia plunged as concerns over economic growth losing steam grew weaker-than-expected US factory data.

According to a Reuters report, “The Institute for Supply Management (ISM) said on Thursday that its manufacturing PMI dropped to 46.8 last month, the lowest reading since November, from 48.5 in June. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3 per cent of the economy.”

V K Vijayakumar, chief investment strategist at Geojit Financial Services, observed that the drop in the ISM Manufacturing index to 46.6 spooked markets, bringing back recession fears in the US. The market, which has been soaring on the soft landing expectation, has turned nervous about the possibility of a US recession and its impact on the market.

"Over the last few days, the Indian stock market has rallied in a single direction despite much volatility on the global front. Last night, there was some news flow about the US recession due to weak manufacturing data—this worried investors. These news flows will trigger a correction of 1-2 per cent, which we witness today," Prashanth Tapse, Senior VP (Research), Mehta Equities, observed.

2. Valuation concerns

Concerns over valuations have been mounting, and experts have pointed out that the market looks ripe for a correction at this juncture.

According to the equity research platform Trendlyne, the current PE (price-to-earnings ratio) of Nifty 50 at 23.5 is above its two-year average PE of 22. Even the current PB (price-to-book value) of the index at 4.22 is slightly above its two-year average PB of 4.09.

"Fundamental support on the valuation front is not there. This year, Nifty 50 is expected to see earnings growth of around 15 per cent," said Vijayakumar.

3. Geopolitical tensions

Geopolitical tension also affected domestic market sentiment in the wake of Israel's claim on Thursday that Mohammed Deif, the head of Hamas' military wing, was killed in an Israeli airstrike in Gaza last month. This came a day after the group's political leader, Ismail Haniyeh, was killed in the capital of Iran, Tehran.

"My fear is something I can't see right now. Tensions in West Asia may get worse. Iran may retaliate, and aggravation of regional conflict is a likely scenario," said Vijayakumar.

Tapse said rising tensions in West Asia are perhaps the most important triggers that will have some effect on various asset classes, including crude oil and gold.

4. Unimpressive Q1 result

The June quarter result of India Inc. has been mixed so far, raising concerns that the market may not sustain the current valuation levels.

"Q1 Earnings have broadly been neutral for markets with no major upgrades or downgrades to FY25/FY26 earnings estimates. We continue to Expect Nifty to report EPS of 1130/1260 in FY25 and FY26, respectively. IT, in general, has seen green shoots of recovery and earnings upgrades. On the other hand, banking has seen minor downgrades on account of NIM pressure," Nikhil Ranka, CIO- Equity Alternatives, Nuvama Asset Management, told Mint.

"Q1FY25 earnings have been lacklustre so far, while broader market valuations remain significantly high," said Vinod Nair, Head of Research, Geojit Financial Services.

5. Overbought market

Market participants pointed out that the Indian stock market was overbought, frequently hitting record highs. It took just 24 sessions to cross 1,000 points, from 24,000 to 25,000. It needed a trigger for correction. Weak global cues and rising tensions in West Asia were the triggers.

"The Indian market was in need of a reason to see a correction as it saw a swift 1,000-point rally in the Nifty 50," Tapse said.

Jatin Gedia, a technical research analyst at Sharekhan by BNP Paribas, noted that the Nifty 50 closed below its level from the last four trading sessions. There was a breakout failure as the index did not experience follow-through buying interest on the upside.

"We expect the Nifty 50 to retrace towards 24,600 – 24,550 where support in the form of the 20-day moving average and 38.2 per cent Fibonacci retracement level is placed. On the upside, 24,820 – 24,850 is the immediate resistance," said Gedia.

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