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6 Reasons Why Nifty 50 Suffered its Biggest Fall in 5 Weeks

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Though today is a leap day, it is anything but a leap for the Indian market. The NIFTY suffered its most significant drop in five weeks, falling over 1%, and the Sensex plunged 790 points.

This drop translates to a loss of Rs 6 lakh crore for Dalal Street investors, as the market capitalization of all BSE-listed stocks fell to Rs 386 lakh crore. While key NIFTY sectors like auto, oil & gas, power, and realty suffered significant losses of around 2%, dragging down stocks like Power Grid Corporation, Apollo Hospitals, Eicher Motors, and Maruti Suzuki, a few bright spots emerged. Stocks like HUL, Infosys, TCS, and Bharti Airtel defied the downward trend and managed to gain.

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Source: NSE

So, what caused this sudden plunge? Let’s closely examine the six key factors contributing to the massive fall.

1. SEBI Steps In

The Securities and Exchange Board of India (SEBI) raised concerns about excessive growth in the small and midcap segments of the market. They urged mutual fund houses to implement measures like moderating fund inflows and portfolio rebalancing to protect investors. This cautious approach from SEBI might have dampened investor sentiment in these sectors.

2. Fading Hopes for a Fed Rate Cut

Investors were keeping a close eye on the release of US economic data, particularly the personal consumption expenditures price index (PCE), hoping it would influence the Federal Reserve’s future interest rate decisions. However, as the expected good forecast didn’t materialize, hopes for a rate cut in June decreased. This shift in expectations about US monetary policy potentially contributed to the global market volatility, impacting the Nifty.

3. Valuations: Finding Comfort in a Stretch?

With the market capitalization to GDP ratio exceeding 120%, investors expressed concerns about stretched valuations, especially in the broader market. While the December quarter earnings season didn’t significantly alter overall expectations for FY25, the lack of upward revision might have led some investors to re-evaluate their positions and potentially trigger some selling.

4. Global Market Jitters

The global market sentiment wasn’t exactly rosy either. MSCI’s emerging market stocks index dipped 0.7%, reaching a one-week low. Additionally, major Asian bourses like the Hang Seng in Hong Kong and the Shanghai Composite in China witnessed significant declines, likely due to ongoing concerns in the Chinese property sector. This global market weakness likely created a ripple effect, impacting the Nifty.

5. Monthly F&O Expiry: Adding to the Volatility

The monthly F&O (Futures & Options) expiry on the same day further fueled market volatility. This event often increases trading activity and potential position adjustments as contracts expire. While specific support and resistance levels were identified for the Nifty around the expiry, the overall activity likely contributed to the day’s downward trend.

6. Profit Booking: Buy the Dip vs. Sell the Rise

The recent market has been characterized by two opposing forces: “buy the dip” and “sell the rise.” While attractive valuations encourage investors to buy when the market dips, the influx of retail investors has also provided some support. However, the profit-booking sentiment might have overpowered the “buy the dip” mindset on this particular day, leading to selling activity and the Nifty’s decline.

So, will the Nifty bounce back?

Only time will tell. While the factors mentioned above provide some context for the recent fall, the market’s future trajectory depends on various elements, including upcoming economic data, global market performance, and investor sentiment. It’s crucial to stay informed and conduct research before making investment decisions.

Read More: Nifty Indices

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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