Nifty slips below 23,900 to test June lows after 1.8% fall: 10 factors to decode the selloff

Relentless selling by foreign investors also dampened the sentiments in the equity market.

The benchmark indices Sensex and Nifty saw a significant selloff November 4, with Nifty 50 slipping below 23,900 to test the lows last seen in June 2024. The selling was led by frontline shares as well as mid and the smallcap names, with all sectoral indices down in the red in early trade.

A host of factors played into today's bearish mood in the market included cautious investors' sentiment ahead of the US presidential elections, Federal Reserve interest rate decision this week among others.

Investors' wealth was eroded by Rs 7.37 lakh crore as the equity markets fell sharply. In-line with a weak trend in equities, the market capitalisation of BSE-listed firms eroded by Rs 7,37,744.54 crore to Rs 4,40,72,863.01 crore (USD 5.24 trillion).

At around 11.30 am, the BSE Sensex tumbled 1329.34 points to 78,394.78, while the NSE Nifty tanked 442.15 points to 23,862.20.

Likely Factors Explaining the Market Crash Today

1) Investors cautious ahead of US presidential election result: The markets globally are focused on the US presidential elections and analysts believe that there could be a near-term volatility in response to the election outcome.

2) Federal Reserve’s monetary policy meeting: The United States Federal Reserve’s monetary policy meeting will be held between November 6-7. Investors are cautious ahead of the Federal Open Market Committee (FOMC) decision which could offer more insight on the path of interest rates by the mother market.

3) Eye on China stimulus: China's National People's Congress (NPC) standing committee will meet between November 4 to November 8, which will be closely watched by investors globally for details of a raft of stimulus measures that were announced earlier. The Chinese lawmakers are expected to announce one of the largest fiscal packages since the pandemic to boost sentiment in the world’s second-largest economy.

4) Tepid Q2 Earnings: The fast-moving consumer goods (FMCG) sector is grappling with mounting challenges, as recent commentary from industry players points to a demand slowdown across both rural and urban markets. Analysts indicate that the domestic market is experiencing headwinds due to a slowdown in earnings growth, further weighing on sentiment. "Nifty EPS growth as indicated by Q2 results may dip below 10% in FY25 which will render the present valuations of about 24 times estimated FY25 earnings, difficult to sustain," noted V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

5) Profit-booking by investors: Investor profit-taking contributed to today’s market decline as caution prevailed ahead of significant events later this week. Analysts echoed similar sentiments. "Investors are adopting a 'sell on any rise' approach, with markets likely to be influenced by the upcoming U.S. presidential election on Tuesday and rate decisions from multiple global central banks, including the Federal Reserve, later in the week," Palka Arora Chopra, Director at Master Capital Services, told Reuters.

6) Auto stocks under pressure: Bajaj Auto emerged as the worst hit stock on the Nifty 50 after it tanked as much as 5 percent on November 4 as investors reacted to the company's weak October sales data. Maruti Suzuki India was down 1.82 percent, while Hyundai Motor India slipped 1.44 percent.

Stock Market LIVE Updates: Nifty below 23,900, Sensex tanks 1,230 pts; all sectors fall

7) Volatility in Bitcoin: Cryptocurrency investors anticipate heightened price volatility in Bitcoin linked to the upcoming U.S. presidential election. Bitcoin surged approximately 12 percent in October, driven by speculation of a potential second term for Donald Trump. Many investors have channelled funds into Bitcoin-tracking assets, banking on a Republican win and Trump's possible return to the White House.

8) OMC stocks plunge: Shares of oil marketing companies (OMCs) dropped up to 5 percent on November 4 after Goldman Sachs issued a bearish outlook on the sector. Goldman Sachs has retained its 'sell' rating on Indian Oil Corp, projecting a target price of Rs 105, implying a 27.5% downside from the November 1 Muhurat Trading close. The downgrade follows IOC’s steep 99 percent drop in Q2 profit, impacted by shrinking marketing margins, with standalone net profit plunging to Rs 180 crore, well below estimates.

9) Relentless FIIs Selling: The recent correction in the market has been mainly due to FIIs selling. They have sold aggressively in the cash segment in the October month, and have also rolled over index futures short positions to the November series. Ruchit Jain, Lead Researcher at 5Paisa.com, said "their 'Long Short Ratio' at the start of the series indicates 78 percent positions on the short side. This seems to be the prime reason why we are still seeing a continuation of the price wise corrective phase." V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services added, "FIIs may continue to sell in this difficult earnings growth environment, constraining any rally in the market. Remaining invested in fairly valued largecaps is the safe option for investors in this tough situation."

10) India VIX spikes: The markets are trading with volatility, as fear gauge India VIX spiked over eight percent to levels of 17.19.

Week Ahead

Technical analyst Anand James, Chief Market Strategist at Geojit Financial Services said "while we expect these levels to be challenged this week, broader trend now requires multiple days of close above 25,100 in order to fully abandon the sell-on-rallies approach that continues to be the dominant theme. Alternatively, inability to float above 24,470 or a direct fall back below 24,150, will expose 23,900-23,300."

Narinder Wadhwa, Managing Director of SKI Capital, however, noted "while certain emerging markets may face challenges, India could see significant opportunities with a Trump presidency due to both strong bilateral relations and a shared liberal, pro-business outlook."

Foreign investors pulled out a massive Rs 94,000 crore from the Indian stock market in October, making it the worst-ever month in terms of outflows, triggered by the elevated valuation of domestic equities and attractive valuations of Chinese stocks.

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