Sensex trades 500 points down after 2-month highs; here's why

Indian equity markets snapped a three-day winning streak on Friday as traders resorted to profit booking after the benchmarks hit a two-month high. 

 

Since the August lows, the Nifty and Sensex indices have rallied about 4 per cent, with the indices surging nearly 1.5 per cent in the last three sessions. On Thursday, Nifty surpassed the 25,400 mark intraday, while Sensex topped the 82,100 mark. 

 

However, on Friday, Nifty fell as much as 0.54 per cent to 25,286, while Sensex tumbled 0.64 per cent to 82,485. As of 12:25 PM, Nifty was down 0.47 per cent at 25,303, and Sensex was lower by 0.6 per cent at 82,505. 

 

   

In the broader market, the midcap and the small-cap indices are higher by 0.09 per cent and 0.05 per cent, respectively. The losses during the session were led by information technology (IT) stocks, private banks, and fast-moving consumer goods. 

 

The market breadth was, however, in favour of bulls with 1,984 stocks advancing on Friday, on the BSE. 1,929 stocks declined, while 208 remained unchanged.  

FOLLOW STOCK MARKET LIVE UPDATES TODAY

Stock Market Crash - Key reasons behind the Sensex, Nifty fall today:

Profit booking: The stock market saw a mild decline on Friday, driven primarily by short-term profit booking rather than any fundamental triggers, analysts said. Markets opened on a muted note today, taking a breather after a three-day rally as short-term traders booked profits in the absence of fresh positive triggers, reflecting a cautious undertone in sentiment, according to Ponmudi R, chief executive officer of Enrich Money. 

 

Chokkalingam, founder and chief investment officer at Equinomics Research, noted that whenever the market rallies for several days, investors often book profits ahead of the weekend. "This has been happening quite consistently. I don't see any new fundamental reason for the fall," he said.   

He added that markets remain sensitive to the ongoing US-India tariff situation, which is yet to be resolved. However, Chokkalingam expressed confidence that a mutually beneficial resolution would be reached, and markets are likely to recover in the short term.

 

Dollar comeback: The dollar index rose after an initial drop after the US Federal Reserve slashed the interest rates by a quarter percentage point amid mixed signals. 

 

Jerome Powell cut interest rates by 25 basis points (bps) and pencilled in two more reductions this year. Powell said that the labour market is showing growing signs of weakness, stating that revised job numbers mean it is no longer "very solid." 

 

A higher dollar usually means global flows moving away from emerging markets, including India. However, Chokkalingam downplayed the impact of Fed cuts. "A 25-basis-point rate cut is too small to meaningfully impact capital flows to India. The rate cuts will only have a larger effect when they reach 50 basis points or more," he said.

 

'Buy on dips': Despite short-term volatility, Chokkalingam said domestic factors remain supportive: strong foreign exchange reserves, a healthy monsoon, improving credit growth, low inflation, and the prospect of further RBI rate cuts. Falling oil prices, expected to ease further in October, are also positive for the economy. 

 

"The market fall today is mainly profit booking. Investors can consider buying on dips, as the outlook remains positive," he said.