Sensex Drops by Nearly 800 Points, While Nifty Maintains Support Above 19,900: Reasons Behind the Market Downturn

tock Markets Plummet Amidst Selling in Major Players like HDFC Bank and RIL, Influenced by Weak Global Signals

On September 20, during the afternoon session, equity indices took a steep dive due to extensive selling in market giants such as HDFC Bank and Reliance Industries Limited (RIL). This downturn was largely influenced by uninspiring global cues.

The BSE Sensex wrapped up the day with a discouraging 796-point drop, marking a 1.18 percent decrease to close at 66,800.84. Simultaneously, the broader NSE Nifty experienced a substantial slump of 231.90 points, representing a 1.15 percent decline, ultimately closing at 19,901.40.

The major catalyst behind this market dip was profit booking in both Nifty and Sensex, primarily attributed to a significant sell-off in HDFC Bank following their analyst meeting. According to Parth Nyati, the Founder at Tradingo, “Additionally, global markets exhibited caution in anticipation of the upcoming FOMC meeting.”

Key Reasons Behind the Market’s Decline

One of the primary drivers of the market downturn was the staggering 4 percent drop in HDFC Bank, which exerted substantial pressure on the Sensex. This decline came in the wake of HDFC Bank’s analyst call on September 18, which failed to generate enthusiasm among analysts.

Foreign brokerage firm Nomura downgraded its rating on HDFC Bank to Neutral after the bank held the analyst call to share details about the merged entity. Due to certain accounting adjustments, the combined entity’s book value would be lower than HDFC Bank’s standalone book value. Consequently, several brokerages reduced their price targets for the stock.

Furthermore, Reliance Industries also experienced a notable decline of over 3 percent, reaching a two-month low of Rs 2,355. This drop was triggered by significant trading volumes, with two crore shares changing hands, far exceeding the one-month daily traded average of 73 lakh shares.

Another factor weighing on the market was the government’s decision to raise the windfall tax on domestic crude oil sales to Rs 10,000 per tonne. This move was particularly impactful given the consistent surge in Brent crude oil prices, reaching a 10-month high of $95 per barrel.

Concerns Over Crude Oil Prices

Rising crude oil prices, which hit $95 per barrel, have reignited concerns over India’s current account deficit (CAD). India, being the world’s third-largest consumer of crude oil, is highly susceptible to fluctuations in oil prices. Earlier in the year, experts had dismissed CAD concerns due to softer commodity prices, particularly in oil. However, the decision by Saudi Arabia and Russia to extend production cuts until the end of 2023 has driven global crude oil prices higher, putting India’s external finances at risk.

Global Market and FII Selling

Global markets faced their own challenges, with Asian stocks struggling and US yields nearing decade highs. This was primarily driven by surging oil prices, sparking inflation fears. Investors were also eagerly awaiting the US Federal Reserve’s interest rate decision.

Additionally, foreign institutional investors (FIIs) continued to sell shares, with a net outflow of Rs 1,237 crore on September 18, contributing to a total outflow of over Rs 4,000 crore for September.

Currency Woes

The Indian rupee exhibited strength, gaining 6 paise against the US dollar, reaching 83.26 in early trade. However, this came after the rupee had settled at an all-time low of 83.32 against the dollar in the previous session. Factors such as surging crude oil prices, a strong US dollar, FIIs’ capital outflows in the equity market, and a widening trade deficit contributed to the rupee’s decline.

Analyst Perspectives

From a technical standpoint, Nifty and Sensex have identifiable immediate support levels at 19,900 and 66,900, respectively. Should these levels be breached, additional profit booking may occur, potentially pushing Nifty to 19,640 and Sensex to 66,000. According to Nyati of Tradingo, the market is expected to maintain a sideways trend in the upcoming trading sessions due to anticipation of the US Federal Reserve meeting, a significant event with the potential to impact global financial markets, as noted by Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.

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