Domestic indices suffer steep losses amid election uncertainty and Nifty options expiry volatility, dragging the broader market

The Sensex and Nifty 50 indices ended Thursday in deep red, plunging over 1% amid heightened concerns about the upcoming general elections. Volatility in Nifty options expiry compounded losses, causing the Sensex to shed 1,062.22 points, or 1.45%, closing at a two-month low of 72,404.17. The Nifty 50 declined 345 points to 21,957.50, down 1.55%.

Smaller-cap indices underperformed, with the Nifty Small Cap 100 plummeting by 2.83% and the Nifty Midcap 100 declining by 1.85%. The market capitalization of all BSE-listed firms collectively shrank from ₹400.69 lakh crore to ₹393.34 lakh crore, resulting in investor losses of ₹7.35 lakh crore.

Amid widespread uncertainty over general elections and subdued Q4 corporate results from large-cap companies, the Indian equity markets lost steam for the fifth consecutive session. The India VIX index, which measures market volatility, soared to a 52-week high of 19, signalling a pervasive sense of fear among investors.

Global market performance added to domestic woes, with Japanese and Australian indices closing lower, while South Korea also saw a retreat in shares. The Nikkei dropped 0.2%, Australia’s markets fell 1.1%, and South Korea also registered declines.

In the Nifty 50 index, only seven stocks managed to close in green, while 43 ended in the red. Hero MotoCorp Ltd was the top gainer, rising 3.19%, followed by Tata Motors Ltd (1.77%) and Mahindra & Mahindra Ltd (1.52%). State Bank of India and Bajaj Auto also secured modest gains. Larsen & Toubro Ltd, Bharat Petroleum Corporation Ltd, Asian Paints Ltd, Coal India Ltd, and Oil and Natural Gas Corporation Ltd all tumbled between 3.85% and 5.65%, leading the laggards.

Sectoral performance was mixed, with Nifty Auto posting a slight gain of 0.78%, while other sectors like Nifty Bank (down 1.11%), Nifty Media (down 1.79%), Nifty Realty (down 2.23%), and Nifty Oil & Gas (down 3.15%) took significant hits.

Vinod Nair, Head of Research at Geojit Financial Services, pointed to the general election uncertainty as a key factor contributing to market turbulence, compounded by Q4 earnings concerns. The market’s slide below the 22,000 mark has fueled expectations of further declines.

Rupak De, Senior Technical Analyst at LKP Securities, noted that the breaking of the 22,200 support level left the bears firmly in control, and without buyers swooping in to purchase the dips, the index continued its downward trajectory. De predicts continued weakness in the near term, with 22,200 serving as a pivotal resistance point.

Analysis:

The market plunge can be attributed to various interconnected factors impacting investor sentiment. Politically, the looming general elections have created uncertainty, pushing investors to adopt a cautious stance until clarity emerges on government policies and economic direction. The resulting volatility is reflected in the steep decline in market capitalization and the soaring India VIX.

Economically, the mixed global cues and expectations surrounding the Bank of England’s rate decision have created ripples in major economies, ultimately influencing Indian markets. The Reserve Bank of India’s recent monetary policy decisions and anticipated inflation data have further heightened anxiety. Weak corporate earnings and concerns over future profitability have also sapped investor morale.

Sociologically, the widespread losses have rippled through various sectors, affecting retail and institutional investors alike. Losses among smaller caps have eroded confidence, particularly for investors lacking the resources to weather high volatility.

From a technical perspective, breaking the key support level of 22,200 has triggered more bearish sentiments. The immediate resistance level remains pivotal, and failure to reclaim it could signal a further downward slide.

Overall, investors should maintain a conservative approach, given the interconnected political and economic uncertainties influencing the market. Diversification and disciplined financial strategies will be crucial as markets navigate this volatile period.