Iran-Israel war, Sebi F&O: Why Sensex plunged over 1,800 pts intraday today

The BSE Sensex fell as much as 1,832.27 points, or 2.17%, reaching an intraday low of 82,434.02. Similarly, the Nifty50 dropped 566.6 points, or 2.19%, hitting an intraday low of 25,230.30.

Stock Market Crash, Nifty crash: Indian benchmark indices —BSE Sensex and NSE Nifty50—bled on Thursday, October 3, 2024 due to escalating tensions between Israel and Iran.

The BSE Sensex fell as much as 1,832.27 points, or 2.17 per cent, reaching an intraday low of 82,434.02. Similarly, the Nifty50 dropped 566.6 points, or 2.19 per cent, hitting an intraday low of 25,230.30. 

Of 30 Sensex stocks, only JSW Steel, Sun Pharma and Tata Steel remained in the green, while Asian Paints, L&T and Bajaj Finserv were the most affected ones. 

Stock Market Crash LIVE Updates: Sensex nears 83,100, Nifty dives to 25,400; Auto, financials drag

 

Broader markets also faced declines, with the Nifty MidCap index down 2.43 per cent and the Nifty SmallCap index down 2.34 per cent. 

All the sectors were also trading in the negative territory, with Nifty Realty down over 4 per cent per cent and Nifty Auto down 3 per cent.

Meanwhile, the volatility indicator for Indian bourses, India VIX, surged up to 13.93-mark intraday. 

"The Indian stock market has recently seen a sharp correction from its all-time highs, driven by multiple factors. Firstly, geopolitical tensions have led to a surge in crude oil prices, which is typically negative for Indian equities. Secondly, there has been a notable outflow of Foreign Institutional Investor (FII) money from India to China over the past few days, exerting pressure on large-cap stocks. Lastly, profit booking ahead of state elections and concerns over elevated valuations have added to the downward pressure," said Santosh Meena, head of research, Swastika Investmart.

Top reasons behind the Sensex, Nifty drop:

Escalating Israel-Iran conflict

The ongoing tensions in the Middle East are a primary factor affecting market performance. Reports indicate that at least six individuals were killed and seven injured in an Israeli strike on a health centre in Beirut. 

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran following the latter's firing of approximately 200 ballistic missiles at Israel. 

The situation escalated further when Iranian missile attacks targeted Tel Aviv, and Israel confirmed the deaths of eight soldiers during operations in southern Lebanon. 

That said, UN Secretary-General Antonio Guterres described the situation as marked by "escalation after escalation."

FIIs on a selling spree

Foreign Institutional Investors (FIIs) have net sold equities worth Rs 1.25 trillion crore this year-to-date.

In the first nine months of the year (2024), Foreign Institutional Investors (FIIs) have sold Indian equities in five of those months. This trend reflects a cautious sentiment towards the Indian market amidst global uncertainties as FIIs shift to Chinese stocks due to cheaper valuations.

In January, FIIs offloaded shares worth Rs 35,977.81 crore, followed by further sales of Rs 15,962.72 crore in February. March saw a brief respite, with purchases amounting to Rs 3,314.47 crore, but this was short-lived as they sold Rs 35,692.19 crore in April and Rs 42,214.28 crore in May.

The pattern continued with a modest purchase of Rs 2,037.47 crore in June and another buying spree of Rs 5,407.83 crore in July. However, August marked another major sell-off, with FIIs offloading shares worth Rs 21,368.51 crore, followed by a rebound in September when they bought shares worth Rs 15,423.32 crore.

Notably, on October 1, FIIs continued their selling trend, offloading shares worth Rs 5,579.35 crore. This indicates ongoing caution among investors regarding market conditions.

Analysts suggest that FIIs might continue to sell, with capital flowing into bullish Chinese stocks and the relatively undervalued Hong Kong market. According to V K Vijayakumar, chief investment strategist at Geojit Financial Services, this trend may persist given the high valuations in India.

Oil prices surge 

Crude oil prices have witnessed major volatility, jumping over 5 per cent in the international market in just two days due to rising tensions in the Middle East. Check Oil Prices Today

Iran's missile strikes on Israel earlier this week have heightened concerns in the region, pushing oil prices higher. Israel’s warnings of potential retaliation, especially if it involves targeting Iran’s oil infrastructure, could further drive prices up.

In the meantime, OPEC+ concluded its meetings this week, reaffirming plans to increase output starting in December.

According to the US Energy Information Administration (EIA), US crude oil inventories rose by 3.9 million barrels, contrary to expectations of a 1.5 million barrel decline. This increase has somewhat tempered the recent gains in crude oil prices.

“We anticipate crude oil prices will remain volatile in today's session. Key support levels for crude oil are at $69.55–68.90, with resistance at $71.70–72.40. In INR terms, support is at Rs 5,880–5,800, while resistance stands at Rs 6,050–6,140,” said Rahul Kalantri, VP of commodities at Mehta Equities.
 

Sebi tightens F&O rules

The Securities and Exchange Board of India (SEBI) has rolled out a six-step plan designed to reduce retail participation in speculative index derivatives, which could result in a potential 30-40 per cent decline in trading volumes. These measures aim to curb excessive speculation in the futures and options (F&O) segment, where daily turnover frequently exceeds Rs 500 trillion, often leaving retail investors at a disadvantage.

Key changes include increasing the contract size from Rs 5 lakh to Rs 15 lakh, which raises margin requirements and mandates the upfront collection of option premiums from buyers. 

Additionally, the new rules will limit weekly expiries to one benchmark per exchange, introduce intraday monitoring of position limits, and eliminate the calendar spread treatment on expiry days. These steps are intended to raise the entry barrier for retail investors, who have been facing major losses, as highlighted by a recent study from the watchdog. READ MORE

Technical indicators
 

Anand James, chief market strategist at Geojit Financial Services, indicated that while there were expectations for a pullback earlier in the week, the failure of Nifty to close above 25,970 could signal a deeper correction, with potential declines targeting the 25,600-24,600 range.

"While the Nifty is currently trading around its 20-day moving average (DMA) of 25,500, there is a possibility of a rebound from these levels. However, selling pressure at higher levels remains a risk. The recent high of 26,277 is likely to act as a near-term resistance, and traders are advised to adopt a "sell on rise" strategy until the Nifty fails to sustain above the 26,000 mark. On the downside, key support levels to watch are 25,100 and 24,800," Meena said.

As geopolitical tensions rise and market sentiment deteriorates, investors remain cautious, leading to major volatility in the Indian stock market.