The benchmark indices fell sharply for the second time this week, amid a global sell-off triggered by the decline in big US technology companies, who had driven this year’s market rebound.
The Sensex nosedived 634 points, or 1.63 per cent, to end at 38,357 — its lowest level in two weeks.
On similar lines, the Nifty plunged 1.7 per cent or 194 points to close at 11,334, with only one of its 50 components posting gains. For the week, the index declined 2.7 per cent — its biggest weekly drop since early May.
Both indices had shed more than 2 per cent on Monday. This followed their highest close since February, in the previous session. Friday’s selling was broad-based, with all sectoral indices ending with losses. Even the mid- and small-cap indices — which had shown some resilience over the past few sessions — dropped 1.7 per cent and 1.2 per cent, respectively. Foreign investors pulled out nearly Rs 1,900 crore, while domestic investors, too, were net sellers to the tune of Rs 457 crore.
Though the market bloodbath cannot be attributed to any single factor, experts said the global sell-off was a sign that stocks had been overheated and investors rushed to take profits at the first sign of danger.
“The correction on Friday was entirely due to the global sell-off. There is nothing incremental that has become negative from the Indian perspective.
Investors were looking for a reason to sell. When markets rise consistently over a period, there are phases of correction and this is healthy. Moreover, banking and financials were under pressure due to the Supreme Court verdict on loan restructuring,” said Siddhartha Khemka, head (retail research), Motilal Oswal.
Domestic markets have jumped nearly 50 per cent from their March lows. The gains have come despite the worst-ever economic slump during the June quarter. Not just India, but most global markets have rocketed since April as central banks have unleashed aggressive stimulus measures.
“A large part of the rally in Indian markets could be attributed to abundant global liquidity.
Yesterday’s sell-off in the US is not a good sign, and as we approach the US presidential elections, we may see an increase in volatility,” said Arjun Mahajan, head (institutional business), Reliance Securities. The India VIX shot up 8 per cent on Friday to 22.16. It had soared 25 per cent on Monday.
Retail investors’ position in the market has taken a hit on account of the disruption caused by the new margin framework. Experts say it has hit volumes and led to unwinding of long positions. Except Maruti, all Sensex and Nifty components ended with losses. RIL and financial stocks were the biggest drag. Axis Bank fell the most among Sensex stocks, at 4.1 per cent. RIL, HDFC, and ICICI Bank declined 1.7 per cent, 2.2 per cent and 2.6 per cent, respectively. Overall, 1,787 stocks fell and 948 gained on the BSE. Market players said investors will observe if the selling on Wall Street was a one-off event or the start of a bear cycle.