Sensex today cracked nearly 1,000 points: Here are 5 reasons why market fell- Explained

Dalal Street witnessed a bloodbath on Wednesday with both the domestic equity benchmark indices ending with sharp cuts. The Sensex plunged more than 1000 points, while the Nifty declined over 300 points during the day amid weak global cues.

Selling was witnessed across the board with midcap and smallcap indices also falling over a percent each. All the sectoral indices closed in the red with banks, auto and metals falling the most.

The Sensex ended with a loss of 676.53 points, or 1.02%, at 65,782.78, while the Nifty closed 207.00 points, or 1.05%, lower at 19,526.55.

Tata Motors, Hero MotoCorp, Tata Steel, Coal India were among the top losers on the Nifty today.

Here are key reasons behind the selling in the Indian stock market today.

US Rating Downgrade

Market came under selling pressure primarily amid global risk off sentiment triggered after the rating agency Fitch cut the United States’ top credit rating.

The credit rating agency downgraded the United States' Long-Term Foreign-Currency Issuer Default Rating (IDR) to AA+ from AAA, citing expected fiscal deterioration over the next three years.

“In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” Fitch said in a statement.

The move led to a selloff in risky assets with investors taking shelter in safe-haven investments.

Read here: Explained: What is a rating downgrade? And six key reasons why Fitch Ratings downgraded US 

“The downgrade of the US credit rating by a notch is sentiment negative for global markets. The US 10-year bond yield spiking above 4% and the dollar index rising to 102 are near-term negative for emerging markets,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

However, Vijayakumar noted that the downgrade did not say anything that the market did not know. So, he believes the negative knee jerk reaction will be short lived. 

“Globally equity markets have been rising on the US economy’s soft landing narrative. The downgrade doesn’t alter that,” he added.

Santosh Meena, Head of Research, Swastika Investmart Ltd believes the downgrade of the US rating by Fitch may have a minor impact on the Indian market, but it is unlikely to be a major concern since rating changes often come with certain repercussions.

“Nevertheless, it could provide an opportunity for some investors to take profits, leading to a possible pullback in the market,” Meena said.

Sell-off in global markets

Indian markets also followed weakness in global markets. Wall Street indices ended lower overnight, while Asian markets also fell on Wednesday.

The S&P 500 declined 0.26%, while the Nasdaq Composite fell 0.43%. Japanese shares witnessed their biggest one-day percentage drop this year, with the benchmark Nikkei average closing down 2.30%, while the broader Topix slipping 1.54%.

Profit booking

Domestic investors also opted to take some money off the table after the recent rally in the market, analysts said. The Nifty index witnessed a sharp rally of 13% in the last four months. 

“Signs of exhaustion are evident at higher market levels, following a strong rally from the lows in March. Foreign Institutional Investors (FIIs) have turned net sellers in the past few days, indicating a cautious stance in the market,” Meena said.

Surging Bond Yields

Indian government bond yields rose following US counterparts that climbed above the crucial 4% handle. The benchmark 7.26% 2033 bond yield was at 7.1754%, after ending the previous session at 7.1600%.

US Treasury yields rose on Tuesday as investors expected an increase in government debt issuance and more signs of economic resilience, despite softening data.

The 10-year yield stayed above 4%, despite some pullback after Fitch Ratings downgraded the government's credit rating to AA+ from AAA.

Technical Factors

On Tuesday, the benchmark Nifty index formed a small negative candle with minor lower shadow, indicating lackluster movement and indecisiveness in the market.

Nifty today fell below its 20-Day Moving Average (20-DMA) of around 19,600, which further triggered declines toward 19,300. 

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