Summary of this article
Sensex and Nifty slumped sharply from intraday highs.
Rising crude oil prices and geopolitical tensions fueled panic.
Heavy profit booking triggered broad sectoral sell-offs.
Indian benchmark indices experienced a volatile session, as they pared intra-day gains to end the session in the red. After opening strong, the BSE Sensex slumped over 970 points from its day’s high, while the Nifty 50 tumbled from its session’s peak to settle near the 22,800 mark. The sudden intra-day reversal wiped out gains from the morning rally, dragging the broader indices lower.
Why Did Sensex and Nifty Pare Gains
The reversal in the benchmark indices from their intra-day highs towards the close of the session was led by rising geopolitical friction, a spike in crude oil prices, surging volatility, and sharp sell-offs in select sectors.
Heavy Profit Booking
In the previous week, the benchmark Nifty rallied for three straight sessions between October 14 and October 16. However, in the past two sessions, investors are likely to have engaged in profit booking. Notably the small-cap and mid-cap segments bore the brunt of this profit booking, as the Nifty MidCap 100 and the Nifty SmallCap 100 closed lower by 1.58 per cent and 2.37 per cent, respectively.
Geopolitical Heat and Elevated Crude Prices
Brent crude futures surged above $110 per barrel amid ongoing military exchanges between the US and Iran around the Strait of Hormuz. Due to India’s import dependence for crude, the high oil prices are expected to threaten corporate operating margins, increase the national import bill, and widen the fiscal deficit. At the time of writing, Brent Crude was trading around $111 per barrel, up by 1.99 per cent. On the other hand, the West Texas Intermediate was trading at $100.02 per barrel, up by 2.25 per cent.
Surging Market Volatility
Investor sentiment also remained anxious during the session. Notably the India VIX or the volatility gauge surged by as much as 9.47 per cent during the session before closing 15.70 levels, down by 6.30 per cent. The sudden jump in the volatility index hints at trader nervousness and heightened expectations of short-term downside pressure, accelerating the unwinding of long positions which led to further selloffs.
Sectoral Pain
Sectors such as auto and metals saw declines during the session, putting pressure on the broader market. The Nifty Auto index sank over 2 per cent before closing lower by 1.54 per cent with all constituents ending in the red, dragged lower by Bajaj Auto, Maruti Suzuki India, Mahindra & Mahindra, Eicher Motors, and TVS Motor Co. On the other hand, the Nifty Bank also came under pressure, closing lower by 0.92 per cent, as 11 out of 14 constituents of the index ended in the red, with State Bank of India, Axis Bank and State Bank of India emerging as top losers.
In the upcoming sessions, market participants will closely watch crude oil price movements around the Strait of Hormuz, US-Iran geopolitical updates, and the ongoing Q2 earnings announcements. Additionally, traders will monitor foreign institutional investor (FII) flows to gauge whether the market finds a base or extends its corrective phase.
