Remember the exciting 14-day rally in the Indian stock market? Well, it came to a screeching halt on Wednesday. The Sensex and Nifty 50 ended the day lower, snapping their longest winning streak in recent memory.
The global markets were in flux yesterday, and our domestic indices couldn’t escape the impact. A sharp decline in overseas markets, particularly in technology stocks, sent ripples through the Indian stock market.
The market ended lower but off its intra-day lows, indicating some resilience amidst the broader downturn. The Sensex fell by 203 points to 82,353, while the Nifty 50 dropped 81 to 25,199.
IT and financial stocks bore the brunt of the decline, with ICICI Bank, Infosys, L&T, Axis Bank, SBI, M&M, and TCS being the primary contributors to the Sensex’s fall. IT companies, particularly those with significant U.S. revenue exposure, faced up to 3% declines. The Nifty PSU Bank index also suffered, with Bank of Baroda, Canara Bank, and Indian Bank leading the decline.
The Midcap index slipped by 74 points to 59,224, and the Nifty Bank index by 289 points to 51,400. On the brighter side, paint companies gained over 2% due to the decline in crude oil prices.
But what caused this sudden reversal? Let’s dive into the five key factors contributing to the market’s downturn.
5 Major Reasons Behind the Great Fall
1. Worries Over U.S. Slowdown
According to the Institute for Supply Management (ISM), the U.S. manufacturing sector continued to struggle in August. The Manufacturing Purchasing Managers Index (PMI), a key indicator of manufacturing activity, rose slightly to 47.2 in August from 46.8 in July. However, any reading below 50 signals a contraction in the sector.
A PMI below 50 indicates that the manufacturing sector is shrinking. This has significant implications for the overall U.S. economy, as manufacturing accounts for approximately 10.3% of the country’s GDP. A weak manufacturing sector can lead to job losses, reduced consumer spending, and a slowdown in economic growth. Given the interconnectedness of global economies, a slowdown in the U.S., the world’s largest economy, can have ripple effects on other countries, including India.
2. Sharp Fall in Global Markets
A significant decline in global markets further pressured Indian equities. This sell-off was particularly pronounced in technology stocks, a major driver of recent market rallies. Asian markets, such as Tokyo and Taipei, experienced steep declines, with benchmarks falling over 3%.
Nvidia Corporation, a leading artificial intelligence (AI) player, experienced a dramatic decline in its stock price. This decline in AI-related stocks dampened investor sentiment and contributed to the broader market sell-off. The S&P 500, Nasdaq Composite, and Dow Jones also suffered their biggest daily percentage declines since early August.
3. Upcoming U.S. Economic Data
Traders in the U.S. were cautious in the lead-up to key labor market reports, particularly the August non-farm payrolls data. Investors and policymakers closely watch this data, which provides insights into the health of the U.S. labor market. In addition to the non-farm payroll data, investors were also keenly focused on the Federal Reserve’s upcoming monetary policy meeting on September 17-18.
The Federal Reserve, the central bank of the United States, is responsible for setting interest rates. Interest rates play a crucial role in influencing economic activity, and changes in interest rates can significantly impact financial markets. The CME Group’s FedWatch Tool, which tracks market expectations for Fed policy, indicated a 63% chance of a 25-basis point interest rate cut and a 37% chance of a more significant 50-basis point reduction.
4. Sluggish Chinese Economy
Recent data from China signaled a struggling economy, adding to the global economic uncertainty. The latest reports showed Chinese factory activity contracting for the fourth consecutive month in August, intensifying concerns that the world’s second-largest economy may struggle to meet its growth target.
5. Crude Oil Price Drop
A sharp decline in crude oil prices mixedly impacted various stocks. While upstream companies like Oil and Natural Gas Corp (ONGC) faced losses, oil marketing companies benefited from lower crude prices. Shares of Asian Paints surged due to expectations of improved profit margins from the drop in crude oil prices.
Sectoral Performance
Sectoral performance was varied, with the Nifty PSU Bank index taking the most brutal hit, closing 1.7% lower. The Nifty IT and Nifty Metal indices also faced significant losses. Earlier in the day, all sectoral indices were red, but some recovered as trading progressed. The Nifty Healthcare and Nifty Pharma indices emerged as the top sectoral gainers.
Coal India experienced a steep decline, with its shares falling 3.1% to a near-one-month low. This drop came after Nuvama Institutional Equities expressed concerns over the company’s declining volumes and softening e-auction prices. The firm also lowered its target price for Coal India.
A Silver Lining
Despite the overall market downturn, there were some positive developments. Major stocks like HDFC Bank and Reliance Industries managed to gain ground. Defense-related stocks saw strong gains, with shares of Garden Reach Shipbuilders, Mazagon Dock Shipbuilders, and Cochin Shipyard rising between 2% and 7%. Investor optimism was fueled by the government’s recent approval of 10 capital acquisition proposals worth ₹1.45 trillion.
Sectors such as healthcare and pharmaceuticals also provided support to the market.
Conclusion
The Nifty’s 14-day winning streak was snapped due to a confluence of factors, including concerns over the U.S. economic slowdown, global market weakness, upcoming U.S. economic data, a sluggish Chinese economy, and the impact of crude oil price fluctuations. While the overall market sentiment was negative, some bright spots provided a glimmer of hope.
Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
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.
