Sensex Crashes Over 1,000pts, Rs 4.9L cr Investor Wealth Lost; Why is Market Falling Today?

Why is Market Falling Today? Indian equity benchmarks fell sharply in late morning trade on Friday after recording a rebound in the previous session. The BSE Sensex slumped nearly 1,100 pts reflecting heightened tension on Dalal Street. The fear gauge index India VIX shot up to 13 per cent ahead of the presentation of the Union Budget and US Fed meeting outcome next week.

Dalal Street investors were left poorer by Rs 8.1 lakh crore as the total market capitalisation of BSE-listed stocks dropped to Rs 268,344 lakh crore. The domestic indices slipped today, dragged by banks, financials and energy stocks offsetting easing concerns of recession in the US.

Bank stocks were among the worst affected as Nifty Bank lost over 1,300 points or 3.3 per cent. PSU bank stocks, which were outperforming in the last few months, were among the worst hit.

Here are the Key Factors Dragging the Indian Stock Market Down-

Banking Stocks Sink

PSU bank stocks were the worst hit with India’s largest lender SBI losing more than 5 per cent. Other top losers included Bank of Baroda, PNB and ICICI Bank.

FII selloff

Foreign institutional investors or FIIs have been on a selling spree this month, taking the total outflow in equities to Rs 16,766 crore so far in January, shows NSDL data. Last Wednesday alone, the FII selloff stood at Rs 2,394 crore. Analysts say FIIs are reallocating funds from India to relatively cheaper markets like that of China.

Markets Nervous Before the Budget

Market participants are hoping the government will continue with its infrastructure spending and announce measures to attract more funds from the private sector.

If Street expectations are not met, market could see a fall. The FY24 fiscal deficit number will also be watched keenly. Foreign brokerage Morgan Stanley expects the fiscal deficit to be 5.9 per cent of the GDP in FY24 against 6.4 per cent for FY23.

“There is a need to consolidate the fiscal deficit. The starting point of 6.4 per cent is already so elevated that markets will not like it if there is any further slippage,” Upasana Chachra, Chief India Economist, Morgan Stanley has said.

UN Cuts India’s 2023 Growth Forecast

The United Nations has cut its GDP growth forecast for India for the calendar year 2023 to 5.8 percent, citing the effect of tighter monetary policy and weak global demand.

“Growth in India is expected to remain strong at 5.8 per cent, albeit slightly lower than the estimated 6.4 per cent in 2022, as higher interest rates and a global slowdown weigh on investment and exports,” the UN’s World Economic Situation and Prospects 2023 report, published on January 25, said.

Fed Outcome Fears

The US economy expanded at a 2.9 per cent annual pace from October through December, which was better than expected. Economists had predicted a 2.3 per cent growth. This indicates that the US Federal Reserve might remain hawkish for a longer period of time.

“Recent data suggest that the pace of expansion could slow sharply in (the current quarter) as the effects of restrictive monetary policy take hold,” Rubeela Farooqi, chief US economist at High-Frequency Economics, wrote in a research report. “From the Fed’s perspective, a desired slowdown in the economy will be welcome news.”

The next Fed decision is scheduled for February 1, 2023, coinciding with India’s Budget.

Nifty Technicals

Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “Banknifty has surrended its 100-DMA of 41,500, which led to multiple stop losses being triggered, which is adding further selling pressure. The market is following last year’s pattern because, in 2022, the Nifty saw a doji candle (which indicates a range-bound move) in the second and third weeks of January, followed by a sharp fall in the final week of January. However, that sell-off was a buying opportunity because then we saw a sharp post-budget rally. So, as per the template, we can expect a post-budget rally in the market.

Technically, 40,000 is a psychological support level for BankNifty, while 39,500 is a critical support level. If Banknifty manages to bounce back from the 40,000-39,500 zone, then we can expect a bounceback. However, Banknifty needs to come back above 42000 for any meaningful recovery.”

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