Indian Market Takes a Hit: Sensex, Nifty Plunge Amid Global Uncertainty
Indian Markets Dive on Global Worries
The Indian stock market experienced a significant downturn on Tuesday, with the Sensex and Nifty50 both dropping over 1%. The BSE Sensex plunged 873 points, closing at 81,186, while the NSE Nifty declined 261 points, ending at 24,683. This sharp decline was fueled by a combination of factors, including global market jitters, profit-booking by investors, and cautious sentiment among institutional investors.
Global Downgrade Sparks Anxiety
Moody’s downgrade of the US government’s credit rating from AAA to Aa1 triggered a wave of caution in global markets. This move, prompted by concerns over rising US debt, led to a surge in bond yields, particularly the 30-year Treasury yield, which hit its highest point since November 2023. The fear is that this rise in yields will result in reduced liquidity in global markets, ultimately impacting emerging markets like India.
Foreign Investors Turn Nervous
Adding to the pressure, Foreign Institutional Investors (FIIs) pulled out a significant amount of money on May 19, selling off Rs 526 crore worth of Indian equities. This marked the first time in over a month that both FIIs and Domestic Institutional Investors (DIIs) were net sellers, indicating a loss of confidence in the market.
Profit-Booking and Valuation Concerns
The recent rally in Indian markets, which saw both the Sensex and Nifty surge nearly 4% following the Operation Sindoor ceasefire, led to stretched valuations. This, coupled with a lack of major positive triggers and uncertainty over U.S. fiscal stability, prompted investors to engage in profit-booking. Vinod Nair, Head of Research at Geojit Investments Limited, stated, “With the lack of major positive triggers and prevailing uncertainty over U.S. fiscal stability, investors opted for profit-booking and adopted a cautious stance. Selling pressure was widespread as participants awaited more clarity on the India-U.S. trade agreement. Given the current premium valuations and delays in the trade deal, we foresee a phase of short-term consolidation, which may lead FIIs to scale back their positions in the domestic market.”
Other Factors Contributing to the Decline
Large-cap stocks, including HDFC Bank, Reliance Industries, ICICI Bank, M&M, Maruti, and Bajaj Finance, experienced significant selling pressure, dragging down the indices. Additionally, shares of Eternal (formerly Zomato) fell over 4% due to concerns about a potential $1.3 billion outflow following its move to become an Indian Owned and Controlled Company (IOCC). Analysts suggest that Eternal may face exclusion from the MSCI index due to its foreign ownership approaching the regulatory limit.
Global COVID-19 Surge Adds to Uncertainty
Meanwhile, a spike in COVID-19 cases in parts of Asia, driven by the JN.1 variant, has further contributed to global uncertainty. Singapore, Hong Kong, China, and Thailand have reported significant increases in cases and hospitalizations, raising concerns about a potential resurgence of the pandemic.
