Sensex crashes over 4,000 points this week, investors lose Rs 16 lakh crore

The combined market capitalisation of companies listed on the Bombay Stock Exchange (BSE) has shrunk to Rs 461.26 lakh crore, marking a loss of Rs 15.9 lakh crore.

In Short

• Sensex crashes 4,100 points, investors lose Rs 16 lakh crore
• FIIs withdraw Rs 32,000 crore, highest-ever single-day selling
• China's stimulus shifts FII focus, Indian stocks lose appeal

In a tough week for Indian stock markets, Sensex plunged by over 4,100 points, wiping out Rs 16 lakh crore of investor wealth. This sharp decline was caused by global factors, including the escalating Iran-Israel conflict and stimulus measures from China, leading to a strong sell-off across sectors. In Thursday's session, Sensex dropped by 1,769 points, before settling with a loss of 809 points. Nifty too fell, testing the 25,000 mark, dropping nearly 1%.

Over the last five trading sessions since September 27, Sensex has dropped 4,148 points. The combined market capitalisation of companies listed on the Bombay Stock Exchange (BSE) has shrunk to Rs 461.26 lakh crore, marking a loss of Rs 15.9 lakh crore.

This week was the worst for Sensex and Nifty since June 2022. Sensex ended the week with a 4.3% drop, while Nifty saw a 4.5% fall.

Vinod Nair, Head of Research at Geojit Financial Services, explained, "The recent gains for both Nifty and Sensex were short-lived as concerns from the Middle East and the flow of foreign funds to cheaper Asian markets hit investor sentiment. During the week, benchmark indices corrected by more than 4%. The decline was broad-based, with sectors like auto, banking, infrastructure, and energy underperforming, although the IT sector showed minimal impact due to improved sentiment regarding spending and revenues after a shift in US Fed policy."

The combined effects of rising tensions in the Middle East and China's stimulus package have made foreign investors cautious, particularly in emerging markets like India. Foreign Institutional Investors (FIIs) pulled out significant amounts of capital, contributing to the stock market's fall. FIIs have withdrawn nearly Rs 32,000 crore from Dalal Street in the last four trading sessions, with Rs 15,243 crore being sold on Thursday alone — the highest-ever single-day FII selling.

China's stimulus and Middle East tension

China’s recent economic stimulus measures, aimed at boosting its economy, led many investors to shift their focus to Chinese markets. Stocks in China were trading at cheaper valuations compared to Indian stocks, causing FIIs to move their funds.

The ongoing conflict between Israel and Iran has further dampened investor sentiment. Iran launched nearly 200 missiles towards Israel in retaliation for an Israeli airstrike, raising concerns about a prolonged conflict in the region. As a result, investors have become even more cautious in moving their capital into emerging markets.

The market’s broad-based fall has impacted most sectors. However, IT stocks remained somewhat insulated from the sell-off due to improved sentiment following the easing of the US Federal Reserve's monetary policy.

Nifty's technical trends

Nifty, which ended below its 20-day Exponential Moving Average (EMA) at 25,556, saw increased selling pressure. A break below 25,150 added further selling momentum.

Technical analysts, however, suggest that the market may find support soon.

Dharmesh Shah of ICICI Direct said, "Most of the time, Nifty takes support around the 50-day EMA during corrections. With Nifty having fallen 4.5% from its high of 26,300, and almost six trading sessions down, we expect this support to hold. If Nifty breaks below the current levels, we still don’t see anything significantly negative."

Looking ahead, market watchers will be closely following Q2 earnings results, which begin next week. Domestic events, such as the outcome of state elections, are also expected to influence market trends in the near future.