The Indian stock market witnessed a sharp plunge on Thursday, November 28, as global and domestic concerns gripped investors. The Nifty 50 fell by 361 points, slipping below the crucial 24,000 mark to close at 23,914, while the Sensex nosedived by 1,200 points, settling at 79,043.
Amid a tumultuous session, the broader indices, including the Nifty Midcap 100 and Smallcap 100, managed to hold steady, ending flat despite the sell-off in blue-chip stocks.
What led to this market turmoil?
Let’s break it down step by step.
1. Geopolitical Tensions in the Middle East and Europe
Escalating conflicts in the Middle East and Eastern Europe rattled investor confidence. The ongoing Israel-Hezbollah conflict intensified after Israel launched airstrikes on Hezbollah positions in southern Lebanon. Simultaneously, the Russia-Ukraine war showed signs of further escalation. These developments triggered uncertainty, leading investors to offload riskier assets like equities.
2. Weak Global Cues
A US stock market holiday left global markets without clear directional cues, dampening momentum in Indian equities. In the absence of external triggers, profit booking dominated the session. Historically, such periods of low global activity often lead to heightened domestic market volatility.
3. Pressure from Heavyweight Stocks
Significant losses in major stocks like Infosys, Reliance Industries, and HDFC Bank dragged indices lower. IT, consumer durables, and automotive sectors faced considerable selling pressure. The Nifty IT index dropped 2.3%, driven by declines in LTTS, Infosys, and HCL Tech. Source: Livemint
4. Foreign and Domestic Investor Activity
Foreign Institutional Investors (FIIs) exhibited a mixed bag of activity. After weeks of persistent selling, they made a notable comeback, purchasing stocks worth Rs 11,100 crore over three consecutive trading sessions. This marked a significant turnaround from the 38 straight sessions of net outflows.
However, the buying momentum quickly faded, with FII purchases slowing down to just Rs 7.78 crore on the third day. This suggests that the recent buying spree may be short-lived, and further selling pressure could emerge in the coming sessions.
Despite this brief uptick, FPIs remain net sellers in November, offloading equities worth Rs 15,845 crore. This follows a similar trend in October when FPIs sold shares worth Rs 94,017 crore. Year-to-date, FPIs have been net sellers, with total outflows of Rs 9,252 crore.
Domestic Institutional Investors (DIIs) adopted a cautious approach. They were on the sidelines, awaiting clarity on upcoming policy decisions and the Union Budget 2024. DIIs will likely adopt a wait-and-watch strategy until the government’s stance on key economic issues becomes clearer. Source: Economic Times
5. Strengthening US Dollar
A robust US dollar added to the market’s woes. Rising dollar rates prompted investors to pivot from equities and commodities to bonds and forex markets. This shift reduced liquidity in the equity markets, contributing to the sell-off.
6. Uncertainty Around US Fed Policy
Uncertainty regarding the Federal Reserve’s rate trajectory further unnerved markets. Although a December rate cut seemed likely, internal disagreements within the Federal Open Market Committee heightened speculation, impacting global and domestic markets alike
7. Monthly Derivatives Expiry
Thursday also marked the expiry of monthly derivatives contracts, which often amplifies market volatility. Traders squared off positions, intensifying the day’s downward momentum.
8. Profit-Booking
After a recent rally, the Indian market was ripe for profit-booking. Investors who had made significant gains in the past few sessions decided to take some money off the table, contributing to the downward pressure.
Market Reaction and Key Data Points
- The India VIX, a measure of market volatility, rose by 4%, reflecting increased fear among traders.
- Total market capitalization on the Bombay Stock Exchange (BSE) dropped by ₹1.21 lakh crore to ₹443.27 lakh crore.
Top Gainers
On a brighter note, Adani Group stocks rallied amid broader market turmoil. Shares of Adani Total Gas surged by 16%, while Adani Energy Solutions and Adani Green Energy hit their upper circuit limits. This followed the group’s clarification about allegations of violations, which had earlier caused significant losses.
Top Losers
Infosys, Reliance Industries, ICICI Bank, HDFC Bank, and TCS collectively contributed to the Sensex’s 710-point drop. The Nifty IT index fell sharply by 2.4% in Thursday’s session, impacted by weaker sentiment following US inflation data that pointed to a slower-than-anticipated pace of rate cuts.
All 10 stocks in the index ended in negative territory. LTTS and Infosys led the declines, with both slipping around 3.5%. Other major constituents, including HCL Tech, LTIMindtree, Mphasis, Tech Mahindra, and TCS, recorded losses ranging from 1% to 2.5%, reflecting the broader weakness in the sector. Source: Economic Times
What Should Investors Do?
While feeling anxious during market downturns is natural, it’s crucial to maintain a calm and rational approach. Here are some tips for investors:
- Stay Informed: Keep yourself updated on market news and economic indicators.
- Avoid Panic Selling: Making impulsive decisions based on fear can lead to significant losses.
- Diversify Your Portfolio: A diversified portfolio can help mitigate risk.
- Consult a Financial Advisor: Seek professional advice to make informed investment decisions.
- Long-Term Perspective: Remember, the stock market is cyclical. Focus on long-term goals and avoid short-term fluctuations.
Conclusion:
The sharp decline in the Indian stock market on November 28th resulted from domestic and global factors. While the market may experience short-term volatility, it is important to maintain a long-term perspective. Investors should focus on quality stocks, diversify their portfolios, and avoid impulsive decisions based on short-term market movements.
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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.
