Markets Crash! Is this a silver lining for investors? What should they do now?

The Indian stock market benchmarks, Nifty 50 and Sensex, failed to hold the early gains to end around a percent lower on Friday, May 3 dragged profit booking across sectors as well as losses in heavyweight stocks.

The Sensex ended 732.96 or 0.98 percent lower at 73,878.15 while the broader Nifty ended 172.35 points or 0.76 percent lower at 22,475.85.

The benchmark indices hit new peaks today before crashing. Nifty fell 446 points from its all-time high of 22,794, while the 30-stock Sensex dropped 1,628 points from its day's high of 75,095. Analysts attributed this market correction to uncertainties around the upcoming Lok Sabha election results, the ongoing earnings season, and a high level of margin trading.

Read here: Sensex crashes 1%; why did Indian stock market fall today?- explained

All sectors experienced significant losses in today's trade, while the volatility index India VIX surged over 10 percent to reach 14.84. The most affected sectors were Nifty IT, Nifty Realty, Nifty Auto, and Nifty PSU Bank indices, reflecting a widespread downturn across the market.

Market experts believe the recent pullback represents a healthy correction at elevated levels. They see the profit booking as anticipated and not a cause for alarm, indicating a natural adjustment following strong market performance. Moreover, they believe that such corrections could aid long-term investors.

Despite this downturn, experts are optimistic that the bullish momentum will continue in the near term.

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Here's what experts have to say regarding today's crash and what they expect in the near term.

Mayank Mehraa, smallcase Manager & Principal Partner at Craving Alpha.

Despite recent tensions between Israel and Iran, markets rebounded, showcasing investor resilience. In the past week, US markets recovered from uncertainty surrounding the Fed's comments, while Chinese markets surged upward. Today's correction could aid bullish investors by providing liquidity for a potential rally next week. These swift corrections prevent complacency, fostering a more sustainable bull run. This adaptability underscores the market's capacity to navigate uncertainty, driven by investor confidence and strategic maneuvers. Despite geopolitical concerns, the market's ability to swiftly recover and capitalize on positive momentum reflects a dynamic and resilient investment landscape, suggesting potential for continued growth in the coming weeks.”

Trivesh D, COO at Tradejini

A 1000-point Sensex drop suggests a potential course correction after a period of strong gains. The uptick in the India VIX also signifies heightened investor anxiety over the last few days.

This is likely due to a confluence of global factors, such as fears around the Fed's rate hike decision and domestic concerns. In my view, a balanced approach is crucial. Long-term investors might see this pullback as a buying opportunity, but staying cautious until market sentiment stabilizes is prudent.

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Vinod Nair, Head of Research, Geojit Financial Services

Profit booking and a degree of caution ahead of the release of the US non-farm payroll resulted in selling pressure in the market. However, the absence of significant negative surprises in Q4 earnings thus far, along with a decline in oil prices, might help to mitigate the downside. Though the correction was broad-based, the large-cap stock was the key underperformer due to the moderation of FII's exposure to the domestic market.

Technical View

Ajit Mishra – SVP, Research, Religare Broking

The sharp drop in the index has nullified the gains made over the past four sessions, although it managed to hold above the support zone represented by the short-term moving average i.e. 20 DEMA. We recommend a selective approach and suggest considering hedged positions if the Nifty fails to maintain the 22,400 level. Besides domestic factors, it's crucial for traders to closely monitor the performance of the US markets for further guidance

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Ashwin Ramani, Derivatives Analyst, SAMCO Securities

Nifty hit an all-time high of 22,795 and immediately came under intense selling pressure, falling 172 points and closing at 22,476. The India VIX rose for all four days in the week, giving huge discomfort to the bulls. The fear gauge rose by a massive 34 percent during the week and closed at 14.62. The India VIX has taken multiple resistance around the 16.5 levels previously and any rise above these levels can cause serious discomfort to the bulls.

Nifty took resistance around Tuesday’s resistance of 22,790 levels and fell sharply. Heavy call writing was observed at all strikes from 22,500 to 22,800. The 22,600 & 22,700 Strike also saw put writers exiting, which led to the strong down move in the Index today. The put writers posed a spirited challenge against the call writers at the 22,500 Strike and the option activity at this strike will provide cues about Nifty’s Intraday direction on Monday.

Bank Nifty fell sharply throughout the day to close at 48,923, down 308 points. All Strikes from 49,000 until 49,500 saw call writing and put writers exiting, which was the reason for the sharp down move in Bank Nifty on Friday. The call writers have a thin lead over the put writers at the 49,000 Strike and the option activity at this strike will provide cues about Bank Nifty’s Intraday direction on Monday.

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Aditya Gaggar, Director of Progressive Shares

Both the timeframes i,e, Weekly (DOJI) and Daily (Bearish Engulfing) indicate a trend reversal in the Index with a negative divergence in the RSI. We believe that the Index is likely to oscillate in the range of 22,160- 22,770. With a Shooting Star candlestick pattern, BankNifty reversed from the higher end of the rising channel; suggesting a correction in it. The Auto and Metal counters are moving on expected lines which boosts our confidence to remain bullish on the same. From the Energy segment, Coal India- Inverted Head & Shoulder Breakout, PowerGrid- Symmetrical Triangle Breakout, Tata Power-Flag, and Pole Breakout. A strong outperformance can be expected from the Pharma sector once it gives a consolidation breakout. Extreme volatility can be anticipated due to result-oriented activities as well as the progress of the general election.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.