“The Indian stock market has faced a sharp correction from its recent all-time highs, influenced by various factors. Rising geopolitical tensions have pushed crude oil prices higher, which typically impacts Indian equities negatively. Additionally, there has been a notable outflow of Foreign Institutional Investor (FII) money to China, putting pressure on large-cap stocks. Lastly, profit booking ahead of state elections and concerns over high valuations have exacerbated the downward pressure,” commented Santosh Meena, Head of Research at Swastika Investmart.
Here are the Five major factors behind today's stock market crash:
Israel-Iran Conflict
Tensions in the Middle East surged as Iran fired around 200 missiles at Israel on 1 October, retaliating for the killing of Hezbollah's Hassan Nasrallah. Israel vowed retaliation, with Tehran threatening a larger attack if targeted. Israel also initiated limited ground incursions into Lebanon to combat Hezbollah forces. Reports indicate at least six fatalities and seven injuries in an Israeli strike on a health center in Beirut, according to The Guardian.
SEBI’s New F&O Regulations
SEBI tightened equity derivatives trading rules, raising the entry barrier and increasing trading costs. The regulatory body announced a reduction in the number of weekly options contracts per exchange and tripled the minimum trading amount. Puneet Sharma, CEO and fund manager at Whitespace Alpha, remarked that while these measures could enhance market resilience, they may stifle investor flexibility and limit participation, especially in an environment that benefits from strategic creativity. According to Sharma, overregulation could hinder India's competitiveness in the global derivatives space.
Rising Crude Oil Prices
Crude oil prices climbed amid heightened concerns about a potential escalation in the Middle East, threatening the region's oil supply. This increase is detrimental to India, a major crude importer, as it impacts the nation's import bill. Brent crude futures rose by 1.24% to $74.82 a barrel, and US West Texas Intermediate crude jumped 1.37% to $71.06 a barrel.
FII Selling
Foreign Institutional Investors (FIIs) extended their selling spree, offloading ₹5,579.35 crore worth of equities on 1 October. Meanwhile, domestic institutional investors continued their buying, purchasing equities worth ₹4,609.55 crore. FIIs have been net sellers for the third consecutive day. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that FIIs might continue selling due to the bullish trend in Chinese stocks, with capital moving to Hong Kong, which remains relatively inexpensive compared to India’s high valuations.
Technical Factors
The Nifty 50 breached key support levels at 25,700 and 25,500, potentially triggering additional selling of 300-500 points. Hardik Matalia, Derivative Analyst at Choice Broking, advised traders to book profits at resistance zones and wait for price dips to re-enter buying positions. Santosh Meena noted that although Nifty 50 is hovering near its 20-day moving average (DMA) at 25,500, a rebound is possible. However, he warned that higher-level selling pressure remains a concern. The recent peak of 26,277 is expected to act as a resistance level, and traders are recommended to adopt a “sell on rise” approach unless Nifty sustains above 26,000. Key support levels to monitor are 25,100 and 24,800.
What Should Investors Do?
For long-term investors, Meena suggests that the current correction offers a prime opportunity to buy large-cap stocks, as their valuations have become more favorable. Sectoral rotation is evident, with commodity-related stocks expected to perform well in the near future.
