Benchmark equity indices tumbled sharply on Wednesday, erasing early gains, as investors turned jittery over rising geopolitical tensions and a sudden spike in market volatility.
The BSE Sensex, which had surged in morning trade tracking positive global cues, reversed course and fell over 700 points from the day’s high. The Nifty slipped below the crucial 24,150 level amid broad-based selling.
Here are the four key factors behind Wednesday’s market selloff:
1) Spike in market volatility index: India VIX, a measure of market volatility, surged 4.42 percent to 15.90, signalling a rise in investor nervousness. A higher VIX is typically associated with increased uncertainty and risk aversion in equities. Traders turned cautious, leading to profit booking across frontline stocks.
2) Crude oil prices extend gains: Brent crude futures rose 0.67 percent to $67.89 per barrel on Wednesday, building on the previous day’s rally. Oil prices are gaining ground amid a fresh round of U.S. sanctions on Iran, a fall in U.S. crude inventories, and dovish signals from President Donald Trump regarding the Federal Reserve.
For India, which imports nearly 85 percent of its oil needs, higher crude prices can widen the current account deficit, stoke inflation, and pressure the rupee — all negative for equity markets.
3) Rupee weakens amid dollar strength: The Indian rupee depreciated 15 paise to 85.34 against the U.S. dollar in early trade. The greenback gained strength after Trump softened his rhetoric against the U.S. Federal Reserve and signalled flexibility on tariffs with China. The dollar index edged higher to 99.28, weighing on emerging market currencies.
A weaker rupee impacts import-heavy sectors and raises concerns over foreign investment outflows, further dampening sentiment on Dalal Street.
4) Fall in banking stocks: Banking stocks fell on April 23, snapping Bank Nifty's six-day gaining streak as the index took a pause from a recent rally, down nearly 1.5 percent from the highest level.
The selloff comes a day after the bank index hit a record high of 55,961 for the first time, including several bank shares touching fresh highs. The fall in share prices may be driven by profit booking after the recent upmove. So far this year, the Nifty Bank index is higher by 8 percent so far this year, having witnessed a sharp rebound since April 9.
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