Stock Markets – Sensex and Nifty 50 Drop Over 1% on Weak Global Cues

Stock Markets – The Indian stock market benchmarks, the Sensex and the Nifty 50, experienced a sharp decline of over 1 percent each on Friday, August 2, driven by an across-the-board selloff amid weak global cues. The Sensex opened at 81,158.99, down from its previous close of 81,867.55, and fell over 1 percent to reach 80,868.91. Similarly, the Nifty 50 opened at 24,789, down from its previous close of 25,010.90, and declined over 1 percent to hit 24,686.85.

Closing Levels and Market Capitalization Impact

The Sensex ultimately closed 886 points, or 1.08 percent, lower at 80,981.95, while the Nifty 50 ended with a loss of 293 points, or 1.17 percent, at 24,717.70. This selloff was broad-based, with the midcap and smallcap indices on the BSE falling by 1.19 percent and 0.58 percent, respectively. The overall market capitalization of firms listed on the BSE dropped to nearly ₹457 lakh crore from ₹462 lakh crore in the previous session, resulting in an investor loss of about ₹5 lakh crore in a single session.

Major Losers and Volatility Index Surge

A total of 42 stocks ended in the red on the Nifty 50 index, with automakers Eicher Motors, Tata Motors, and Maruti among the top losers. The volatility index, India VIX, jumped over 11 percent to 14.41, indicating rising nervousness among market participants.

Sectoral Performance

Among the major sectoral indices, Nifty Realty plunged by 3.5 percent, while Auto and Metal sectors each fell by nearly 3 percent. The IT index suffered a loss of over 2 percent. The Nifty Bank index declined by 0.41 percent, while the Private Bank index slipped by 0.39 percent. On the other hand, the PSU Bank index experienced a strong loss of 1.72 percent.

Factors Behind the Market Decline

1. Weak Global Cues: Weak global sentiment spilled into the Indian stock market, with major markets in the US and Asia plunging due to concerns over economic growth. The Institute for Supply Management (ISM) reported that its manufacturing PMI dropped to 46.8 last month, the lowest reading since November. This spooked markets, bringing back recession fears in the US.

2. Valuation Concerns: Concerns over high valuations have been mounting. The current PE ratio of Nifty 50 at 23.5 is above its two-year average of 22, and the current PB ratio at 4.22 is slightly above its two-year average of 4.09. Market experts pointed out that the market looks ripe for a correction.

3. Geopolitical Tensions: Geopolitical tensions, particularly in West Asia, have also affected domestic market sentiment. Israel’s recent claims of killing Hamas’ military wing head in an airstrike and the subsequent assassination of the group’s political leader in Tehran have raised concerns about regional conflict escalation.

4. Unimpressive Q1 Results: The June quarter results of Indian companies have been mixed, raising concerns that the market may not sustain current valuation levels. Earnings for Q1FY25 have been lackluster, while broader market valuations remain significantly high.

5. Overbought Market: The Indian stock market was deemed overbought, frequently hitting record highs. It took just 24 sessions for the Nifty 50 to cross 1,000 points, from 24,000 to 25,000. Weak global cues and rising tensions in West Asia triggered a correction.

Technical Analysis and Market Outlook

Technical analysts expect the Nifty 50 to retrace towards 24,600 – 24,550, where support in the form of the 20-day moving average and 38.2 percent Fibonacci retracement level is placed. On the upside, 24,820 – 24,850 is the immediate resistance.

Conclusion

The significant drop in the Indian stock market underscores the impact of weak global cues, valuation concerns, geopolitical tensions, unimpressive Q1 results, and an overbought market. Investors remain cautious as the market navigates through these turbulent times.

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