Stock market crash: Investors lose over Rs 3 crore as Sensex, Nifty decline; 5 key factors behind Monday's chaos

Indian benchmark stock indices closed deep in the red on Monday with the Sensex falling over 1,250 points while the Nifty50 ended below the 25,850 mark on profit booking at higher levels. The decline was led by index heavyweights Reliance Industries, IT and banking stocks.

The market capitalization of all BSE-listed companies fell by Rs 3.55 billion to Rs 474.38 billion.

Reliance Industries, ICICI Bank, HDFC Bank and Axis Bank together dragged the Sensex down by 730 points. Infosys, M&M, Bharti Airtel, SBI and ITC also contributed to the decline.

At the sector level, Nifty Bank, Auto, Financial Services, Pharma and PSU Bank closed 1-2% lower. Meanwhile, the fear gauge India VIX rose 6.9% to 12.8.

However, Nifty Metal gained 1.3%, extending its winning streak after China announced measures to boost its slowing economy. NMDC, APL ApolloTubes, Welspun Corp and JSW Steel were the biggest gainers in the index.

Here are the key factors that led to today's decline

1) FIIs turn to Chinese markets

Foreign institutional investors (FIIs) have shifted their focus to the Chinese market after the Chinese government announced a series of stimulus measures. The blue-chip CSI300 index rose 3.0% while the Shanghai Composite gained 4.4%, adding to last week's 13% rally. In addition, China's central bank announced plans to cut mortgage interest rates on existing home loans, which boosted investor confidence in equities, reflected in the massive rise of around 18% in the Hang Seng index in September. This increase was triggered by hopes of a revival of the Chinese economy in response to the monetary and fiscal stimulus announced by the Chinese authorities,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

2) Geopolitical uncertainty

Geopolitical tensions, particularly the escalation of Israeli attacks in Lebanon, have increased uncertainty in global markets. Although oil prices have been kept in check by potential supply increases, the ongoing Middle East conflict has increased concerns about energy supplies. Rising crude oil prices, with Brent crude futures up 0.71% and US West Texas Intermediate up 0.63%, further influenced market sentiment and put pressure on the Indian stock market due to India's dependence on oil imports.

3) Nervousness ahead of important US data and Powell's speech

Investors are excited about a number of key events this week, starting with Federal Reserve Chairman Jerome Powell's speech today. Numerous speeches from Fed officials are scheduled throughout the week, and markets are watching closely for signals on the direction of monetary policy. Key data points including job vacancies, private hiring numbers and ISM manufacturing and services surveys are also due.

The highlight of the week is the US jobs report, which could influence whether the Federal Reserve decides to make another significant interest rate cut in November. Recent data showing a moderate increase in consumer spending and easing inflation pressures have further raised expectations of an outsized rate cut at the upcoming Fed meeting.

Futures suggest that the probability of the Fed easing by 50 basis points on November 7th is about 53%.

4) Interest rate hike pressure from Japan

Markets also came under pressure on Monday after Japan's ruling Liberal Democrats late Friday named former defense minister Shigeru Ishiba to replace Prime Minister Fumio Kishida, who is due to step down on Tuesday.

Ishiba has expressed support for the Bank of Japan's possible moves to raise interest rates from their near-zero levels. He also supports other measures, such as a possible increase in corporate taxes, that are seen as less market-friendly compared to his main rival for the top job, Economic Security Minister Sanae Takaichi, whom he defeated in a runoff.

When the Bank of Japan last raised interest rates in August, global markets experienced a sharp decline. The Nikkei 225 index fell 12.4%, marking its worst day since 1987, while U.S. markets fell about 3%, triggered by investors adjusting to the sudden interest rate hike, leading to sell-offs in global stocks.

5) FIIs become net sellers

Foreign institutional investors (FIIs) turned net sellers, offloading shares worth Rs 1,209 crore on September 27. However, their total inflows remained strong in September, crossing Rs 57,000 crore for the month.

“FIIs may continue to sell in India and shift more money to better performing markets. However, this sale is unlikely to have a significant impact on the Indian market as the huge domestic money can easily absorb whatever the FIIs sell,” said VK Vijayakumar.