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Stock market crash today: Why BSE Sensex has plunged 800 points

Published:

Stock market crash

today:

BSE Sensex

and Nifty50, the Indian benchmark equity plunged in trade on Wednesday.

Nifty50

dropped below the crucial 22,000 level, while BSE Sensex, the broader market index, fell by around 800 points or 1% to reach a low of 72,300. The sell-off was even more pronounced in the midcaps, smallcaps, and microcap segments, with their respective indices experiencing a decline of approximately 2%.

As a result, investors on Dalal Street witnessed a collective loss of about Rs 6 lakh crore, as the market capitalisation of all BSE-listed stocks dropped to Rs 386 lakh crore, according to an ET report.
Nifty had been moving sideways in a consolidation phase, but its consistent closure above the 22,000 mark for eight consecutive sessions indicated a positive trend. However, technical analysts now believe that if the index sustains the breakout below 22,000, it could trigger a downward movement.
Dr. V K Vijayakumar of Geojit Financial Services stated that in the near term, the market is expected to remain range-bound. Foreign institutional investors (FIIs) have significantly reduced their selling this month and have become net buyers of Rs 872 crore in the cash market so far in February, despite the high US bond yields. This suggests that FIIs are unlikely to engage in large-scale selling, which could cause a sharp decline in the market.”

Why BSE Sensex, Nifty50 crashed today:

1) Sebi takes action: The Securities and Exchange Board of India (Sebi) has taken notice of the soaring prices of smallcaps and midcaps. It has instructed mutual funds to disclose more information about the risks associated with these segments, where liquidity could be a challenge. Mutual funds will now have to reveal the time it might take to accommodate large redemptions, the potential impact of significant outflows on portfolio value, and the amount of cash and liquid assets held to meet such outflows.

2) Diminishing hopes from the US Federal Reserve: Market participants are eagerly awaiting the release of the US’ personal consumption expenditures price index (PCE) data for January, as it could influence the Federal Reserve’s decisions regarding interest rate hikes. The probability of a rate cut in the June meeting has dropped to 59%, according to the CME Group’s FedWatch tool.
3) Concerns about valuations: With the market cap-to-GDP ratio surpassing 120%, investors are becoming increasingly uneasy about valuations, particularly in the broader market. Despite the conclusion of the December quarter earnings season, expectations for the fiscal year 2025 have not shown significant changes.
4) Global market trends: MSCI’s broadest index of Asia-Pacific shares, excluding Japan, experienced a decline of 0.44% to reach 525.40 points, although it remains close to a seven-month high of 531.56 after a strong rally. Japan’s benchmark Nikkei 225 also edged 0.3% lower, while Hang Seng in Hong Kong and the Shanghai Composite both recorded declines of 1.4% and 1.9% respectively.
5) Influence of monthly F&O expiry: Some of the market volatility can be attributed to the monthly Futures and Options (F&O) expiry scheduled for tomorrow. “For the February monthly series, the 22,200 call option has significant open interest, followed by the 22,300 strike. On the put side, the 22,200 strike has significant open interest, followed by the 22,100 strike, indicating that the range of 22,140-22,120 will serve as immediate support for the index. On the upside, the level of 22,270 will act as immediate resistance,” according to SBI Securities.
6) Profit-taking: In recent weeks, the market sentiment has been dominated by two opposing themes: buying the dip and selling the rise. While valuations support the case for booking profits, a surge of retail investments is providing some protection on the downside.

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