Why is market falling today? Sensex drops over 650 points, Nifty below 24,200. 6 factors behind the selloff

The Indian stock market traded lower on Monday, with Sensex and Nifty falling up to 0.9% after recording sharp gains in the previous session as Iran-US war escalations and rising oil prices spooked investors.

Sensex dropped 690 points to 77462, while Nifty 50 declined over 184 points to 24,149.9 during Monday’s session. This came as India VIX, which measures market volatility, gained more than 3% to 13.60.

Tech Mahindra, Bharti Airtel, and ICICI Bank shares gained more than 1% to lead gains on Sensex, while Axis Bank and HDFC Bank shares crashed around 5% each to lead losses.

Broader markets also slipped into the red, with Nifty Midcap 100 and Nifty Smallcap 100 trading with marginal losses. Sectorally, Nifty Private Bank index crashed more than 2% to lead losses. Nifty Realty and Nifty Financial Services also dropped more than 1% each. Nifty PSU Bank index meanwhile jumped over 1%.

The overall market breadth however was slightly positive, with NSE seeing 1,355 advances and 1,246 declines, while 116 stocks remained unchanged.

Here are six key factors that are pushing the stock market down today:

1) Iran-US war escalations

The conflict between Iran and the US continued to escalate further over the weekend. The US conducted a ninth straight night of attacks against Iran, while US allies Kuwait and Bahrain reported more Iranian strikes.The Islamic Revolutionary Guard Corps said on Monday that two oil tankers ⁠had exploded and been immobilised after attempting to transit what it described as an unsafe southern route through the Strait of Hormuz, alleging they had been encouraged by the U.S. military to use the passage.

2) Oil jumps above $90/barrel

As a result of the escalating Iran-US war, oil prices sharply jumped. Brent crude futures gained more than 2%, to $90.19, touching the highest since June 11 and extending gains after rising 15.9% last week, its biggest weekly gain since April.

US West Texas Intermediate crude was at $84.20 a barrel, up more than ‌2% to the highest level ⁠since ⁠June 12. The rising oil prices comes as the raging conflict restricted oil shipments through the Strait of Hormuz, a critical waterway that accounted for 20% of daily global oil and gas supply shipments before the war.

3) Weak global cues

The bearish sentiment on Dalal Street comes amid an overall global market downturn. Japan’s Nikkei and South Korea’s Kospi crashed more than 4% each on Monday morning. Taiwan Weighted meanwhile was trading in the red with marginal losses.

Wall Street also recorded a sharp downturn in the previous session. S&P 500 and the tech-heavy Nasdaq dropped more than 1% each on Friday, while Dow Jones Industrial Average fell nearly 0.8%. For the week, the S&P 500 ended down 1.55% while the Nasdaq fell 2.9% and the Dow lost 0.93%.

4) Bank stocks plunge after Q1 earnings

The bearish market undertone was led by a sharp selloff in heavyweight bank stocks after their respective Q1 earnings failed to meet expectations. Axis Bank and HDFC Bank shares crashed around 5% each, while Kotak Mahindra Bank shares dropped over 3% to lead losses on Sensex.

These heavyweight private lenders had announced their June quarter results on Saturday, with the stocks reacting to the earnings print today.

5) Bond yields rise

US Treasury yields rose, further dampening equity market sentiment. The yield on benchmark US 10-year notes rose to 4.551% while the 30-year bond yield gained to 5.073%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose to 4.183%. Rising bond yields typically make bonds more attractive to investors, which in turn can lead to some downtrend in markets.

6) Rupee declines

Rupee fell 11 paise to 96.41 against the US dollar in early trade on Monday. The broader bias for the rupee remains weak as elevated crude oil prices and cautious foreign fund flows continue to weigh on sentiment, said Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities.

Market participants will closely monitor global developments, crude oil movement, and FII activity for the next directional move, he said. “Technically, the rupee is expected to trade in the 96.00–96.55 range, with the overall trend continuing to favour weakness,” he added.

What lies ahead?
There are near-term headwinds and tailwinds for the market now, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted. “The strongest headwind is Brent crude spiking above $90 on escalating tensions between US and Iran,” he said, adding that if this trend continues, India’s vulnerability to energy shock will resurface with negative implications for the rupee and FPI flows.

“On the positive side, the weakening of the AI trade continues in markets like the US, South Korea and Taiwan,” he noted.

Technical view on Nifty
Nifty continues to trade above its critical moving averages, Rupak De, Senior Technical Analyst at LKP Securities, noted. Additionally, the RSI has entered a bullish crossover, he said.

“In the near term, the index is likely to remain strong, with the potential to advance towards the 24,800 level. On the downside, immediate support is placed at 24,200. A decisive fall below this level could trigger a phase of consolidation,” according to the analyst.

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)