MUMBAI: India’s equity market experienced a major crash on Monday morning with the benchmark indices falling up to 3% in opening deals. The fall is attributed to weak global cues amidst concern that the US economy is heading towards a recession and rising tensions in the Middle East as Iran has vowed to retaliate against Israel’s killing of top Hamas leaders.
At the opening, the BSE Sensex was down nearly 2,400 points to a low of 78,580 while the NSE Nifty50 plummeted more than 400 points to trade at a 24,303 level. At 10.35 pm, the two indices were down about 2% each.
The broader market was also under tremendous pressure, with smallcap and midcap indices falling as much as the benchmarks. India's volatility index on Monday surged 20%.
This decline in the Indian market is in line with a crash in other Asian markets. Japan’s Nikkei fell over 6% and other markets such as Korea, Taiwan, and Australia were down from 2.5% to 7%.
"The rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy. This expectation is now under threat with the fall in US job creation in July and the sharp rise in US unemployment rate to 4.3%. Geopolitical tensions in the Middle East also are a contributing factor. Another significant factor is the unwinding of the Yen carry trade which is bleeding the Japanese market. The crash in Nikkei by above 4% this morning is an indicator of the crisis in the Japanese market,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
He added, “Valuations in India, driven mainly by sustained liquidity flows, continue to be high particularly in the mid and smallcaps segments. The overvalued segments of the market like Defence and Railways are likely to come under pressure. The buy on dips strategy which has worked well in this bull run, is likely to be threatened now. Investors need not rush to buy in this correction. Wait for the market to stabilise."
Santosh Meena, Head of Research, Swastika Investmart said that the global market is reeling as bears enter with a cocktail of bad news. According to Meena, the fear of a reverse Yen carry trade, following an interest rate hike in Japan, was the initial catalyst. This was compounded by fears of a recession in the USA after extremely poor job data, which spooked market sentiment.
“China and Europe are already grappling with slowdowns, and escalating geopolitical tensions are adding further pressure on the markets. We are witnessing signs of the first meaningful correction in global markets after an extended bull run,” added Meena.
He further said that investors and traders should be cautious and avoid rushing in immediately, as better entry levels may emerge. “The outlook for our market remains very bullish, but the potential for a significant correction means investors should consider taking profits where valuation concerns exist. Technically, Nifty has support at the budget day low of 24075, with the next support at the 50-DMA around 23900. Below this, the major support lies at the 23300 level. On the upside, 24800-25000 will remain a key resistance area.”