Benchmark indices tanked on May 9, with NSE Nifty 50 falling below 22,000, and BSE Sensex tumbling over 1,000 points. Both Nifty 50 and Sensex commenced the day on a downward trajectory and fell over 1 percent intraday.
At close, the Sensex was down 1,062 points or 1.5 percent at 72,404, and the Nifty 50 was down 335 points or 1.5 percent at 21,967. About 865 shares advanced, 2,394 shares declined, and 102 shares remained unchanged.
This is the fifth straight day of sell-off for the headline indices. A confluence of factors such as the ongoing Lok Sabha elections, lacklustre Q4 results for the 2024 season, rising crude, among other factors have led to this prolonged downturn.
Uncertainty surrounding the general elections has significantly bolstered India's volatility gauge, the India VIX, said Arvinder Singh Nanda, Senior Vice President of Master Capital Services. He said that India VIX hitting its 52-week high at 19 is indicative of the market apprehension.
Here are the five factors that have led to the downturn in Indian equities.
1. Election Uncertainty Looms: Analysts suggest that the market has already factored in the victory of BJP-NDA alliance in the Lok Sabha elections. However, a lower voter turnout has raised doubts about the BJP's expected seat count. Gaurang Shah of Geojit said, "The comments from political parties and their leaders will also carry significant weight in influencing the market sentiment."
2. Underwhelming Q4 FY24 Earnings: The Q4 2024 earnings season has unfolded without any notable surprises, failing to spur additional buying activity on Dalal Street.
3. US Fed's Hawkish Stance Weighs: Recent hawkish rhetoric from certain US Federal Reserve officials has intensified pressure on Indian equities. This week, Minneapolis Federal Reserve President Neel Kashkari suggested that the Fed might need to keep rates steady for the remainder of the year, citing stagnant inflation and housing market strength. On May 8, Susan Collins, President of the Federal Reserve Bank of Boston, echoed similar sentiment.
A hawkish tone from Fed officials has catalyzed a rally in the US dollar index. Since May 7, the dollar index has been steadily climbing, reaching 105.57 by May 9. Rising US dollar prices have fueled the 10-year benchmark US Treasury Yield which climbed to 4.48 overnight. It has remained around the 4.50 mark for a considerable period, rendering bonds more appealing compared to equities.
4. Oil Prices Inch Upward Amid Mixed US Inventory Report: Oil prices saw a modest increase as traders digested a mixed snapshot of US inventories, which revealed an unexpected decline in nationwide crude holdings. Brent crude approached $84 a barrel following a 0.5 percent climb in the previous session. Meanwhile, the West Texas Intermediate remained above $79.
5. Expiry of Derivative Contracts: The weekly expiry of Nifty options contracts have led to an increase in volatility in the equity market as traders buy or sell underlying assets to manage their derivative positions.
As the market continues to scrutinize the strength of the US economy and the possibility of a Federal Reserve rate cut, next week's US inflation data assumes heightened significance. This data arrives on the heels of the employment figures released on May 3, which signalled a slowdown in the labour market. Against this backdrop, investors await the release of the initial jobless claims data from the US later today to get further insight into the economic landscape of the US.