Investor jitters spark stock sell-off ahead of US elections; analysts urge caution

The Sensex and Nifty 50 plunged into the red during the afternoon session as the intense selling pressure across the index heavyweights dampened investor sentiment.

India’s benchmark indices fell more than 1 percent on November 4, their steepest decline in more than a month, as investors braced for this week’s US presidential election and an interest rate decision from the US Federal Reserve.

Local stocks witnessed heavy pressure during the first half of the trading session, with the National Stock Exchange’s benchmark Nifty index breaching the 23,900 psychological level. The indices witnessed some recovery during the second half but closed the day in the red.

The BSE Sensex plunged 941.88 points, or 1.18 percent, to end trading at 78,782.24, while the Nifty fell 1.27 percent to 23,995.35. The Nifty last fell 2.12 percent on 3rd October 2024, and 1.41 percent on 30th September 2024.

All major sectoral indices moved in line with the benchmark, with realty, energy, and metal among the top losers. Broader indices also felt the pressure, falling between 1.2 to 2 percent.

Investors are closely watching the results of the US presidential election on November 4 and the outcome of the upcoming Federal Reserve policy meeting on November 7.

With Indian markets trading at high valuations, these headwinds worked as key catalysts to trigger the ongoing correction, according to Vishnu Kant Upadhyay, assistant vice president of research and advisory at Master Capital Services Ltd. Concerns about a potential delay in the US election results have further fueled anxiety among investors.

Investors lost Rs 7.37 lakh crore in wealth as equities plunged, with the total market capitalization of BSE-listed firms dropping to Rs 4.41 lakh crore amid a sharp market decline.

Profit booking added to today’s market decline as investors turned cautious ahead of key risk events later this week.

“Investors are adopting a ‘sell on any rise’ approach, with markets likely to be influenced by the upcoming US 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.

The Week Ahead and Key Levels to Watch

The breakdown of Nifty’s recent consolidation range of 24,000–24,500 and a noticeable increase in the volatility index (India VIX) reflects growing pessimism among participants.

“Continued volatility is anticipated in the short-term, as attention shifts to the closely contested US presidential election. Additionally, key economic events, such as the US Fed and BoE policy decisions, will be critical in shaping market movements,” said Vinod Nair, Head of Research, Geojit Financial Services.

Broader market and FII-DII flows

The recent correction in the market has been mainly due to FIIs selling. They sold aggressively in the cash segment in October 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.”

FIIs may continue to sell Indian stocks amid weak earnings growth, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services. “Remaining invested in fairly valued largecaps is the safe option for investors in this tough situation,” he added.

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