Nifty 50 drops over 2%, Sensex tumbles 1,600 points: 5 key reasons why Indian stock market fell today

Stock market today: The Indian stock market indices, Sensex and Nifty 50, witnessed their biggest single-day percentage loss since June 2022 on Wednesday dragged by across the board selling amid weak global cues.

The benchmark Sensex tanked 1,628.01 points, or 2.23%, to end at 71,500.76, while the Nifty 50 settled 460.35 points, or 2.09%, lower at 21,571.95.

Barring Nifty IT, all the sectoral indices ended in the red with bank stocks bleeding the most weighed down by HDFC Bank Q3 results. 

Broader markets, Nifty Midcap 100 and Nifty Smallcap 100 indices also closed over 1% lower each.

Read here: Stock market today: Nifty 50, Sensex suffer biggest single-day loss since June 2022; investors lose over ₹4 lakh crore

Here are some key reasons behind the stock market fall today:

Bank stock losses weigh

Heavy selling in banking stocks weighed on overall markets with HDFC Bank share price cracking more than 8% after reporting December quarter earnings. This led a 4.28% drop in Nifty Bank.

Also Read: HDFC Bank share price cracks 7% after Q3 results; what should investors do?

Profit booking on valuation concerns

After a sharp rally in the markets with Nifty 50 scaling above 22,100 in the previous session, investors likely opted to take some profit out of the table, analysts said. Meanwhile, concerns over stretched valuations in the midcap and smallcap space also triggered selling.

“Domestically, even though the economy is doing well and corporate earnings are good, all these positives are in the price and the valuations are elevated warranting a correction. The mid and small cap space is highly overvalued and is sustaining at high levels only by the high liquidity in the system. Some profit booking and moving the money to fixed income can be considered now,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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Weak global market cues

Weak global market cues also dragged domestic indices lower. Asian markets traded in the red, while US stock market indices ended lower overnight as bond yields rose. 

US Treasury yields rose on Tuesday after central bankers in Europe and the United States pushed back against market expectations of imminent interest rate cuts. The yield on the benchmark US 10-year Treasury note increased by over 11 bps to 4.064%, weighing on risky assets.

“Market is likely to turn slightly weak in the near-term, getting impacted by some negative global and domestic cues. The global negativity will come from the rising bond yields in the US responding to concerns that the sharp rate cuts expected from the Fed this year may not materialise. Now indications are that the Fed is unlikely to cut in March and the total cuts in 2024 may not be five or six that the market had partly discounted. This will be a drag on global equity markets,” Vijayakumar added.

Dampened US rate cut expectations

The expectations for interest rate cut in March in the US were dampened following the remarks of US Federal Reserve Governor Christopher Waller.

The US is “within striking distance” of the Federal Reserve’s 2% inflation goal, but the central bank should not rush to cut its benchmark interest rate until it is clear lower inflation will be sustained, Fed Governor Waller said. 

And regardless of when rate cuts begin, Waller said the central bank should proceed "methodically and carefully," not make the sort of large, fast reductions used when the Fed is trying to bail out the economy from a shock or a pending downturn, Reuters reported.

Also Read: Sensex sheds 1,400 points after crossing the 73,000 mark; is it time to be cautious? Here's what top experts say

Technical View

On January 16, Nifty 50 index formed a spinning top candlestick pattern on the daily chart with a probability of a bearish divergence. 

“For the time being, the level of 22,120 will act as resistance while the immediate support is placed at 21,930 and the next strong support is positioned at 21,800,” said Aditya Gaggar, Director of Progressive Shares.

He believes the higher side for Bank Nifty seems to be capped at 48,300 while on the downside strong support comes at 47,560. 

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