Sensex drops 443 points, Nifty 50 ends at 24,238. What drove the stock market down? Explained

Stock market today: Stock market benchmarks, the Sensex and the Nifty 50, ended lower on Monday, 20 July, tracking weak global cues amid escalating US-Iran tensions.

The Sensex declined 443 points, or 0.57%, to close at 77,708.52, while the Nifty 50 shed 96 points, or 0.39%, to settle at 24,238.50.

However, the mid and small-cap segments remained resilient. The Nifty Midcap 100 index climbed 0.60%, while the Smallcap 100 index rose by 0.16%.

While the Nifty 50 ended lower, as many as 36 stocks ended higher in the index. Trent, Power Grid, and Nestle were the top gainers, while Axis Bank, HDFC Bank, and Maruti were the top laggards in the index.

Why did the Indian stock market fall?

Let's take a look at five key factors that seem to have driven the domestic stock market down:

1. Profit booking in banking, financial stocks

Strong profit booking in banking and financial heavyweights is the main factor why the Indian stock market is falling today.

HDFC Bank, Axis Bank, and Kotak Mahindra Bank were the top three drags on the Sensex index.

Shares of Axis Bank crashed 5.38%, while those of HDFC Bank declined 5% during the session. Kotak Mahindra Bank's share price dropped 2.12% on the BSE.

Among the sectoral indices, Bank Nifty crashed 1%, while the Financial Services index plunged 1.2%

The strong decline in banking and financial stocks followed the Q1 results of some banking heavyweights over the weekend.

Experts highlighted that Q1 margins of some heavyweights failed to meet expectations. Moreover, their margins may remain under pressure for the next few quarters, as the RBI may raise interest rates in the near future due to rising crude oil prices and increased inflationary pressures.

"The margin pressure in select banks is weighing on market sentiment. While deposit growth has improved, margins have not expanded along the expected lines. That is what's affecting sentiment. The market is also anticipating rate hikes, and there are concerns that margin pressure may continue. That's why investors are booking profits," Ajit Mishra, SVP of Research at Religare Broking, noted.

2. Weak global cues

Weak global cues amid escalating US-Iran tensions further weighed on sentiment. South Korea's Kospi crashed nearly 5%, while oil prices climbed to their highest level in more than a month amid heightened tensions between the US and Iran. European markets traded mixed when the Sensex closed.

The US strikes on Iran continued for the ninth consecutive night, even as US Secretary of State Marco Rubio on Sunday (local time) said that Washington remains open to a diplomatic solution with Tehran.

The Middle East conflict is weighing on global market sentiment, as investors worry that its macroeconomic fallout could linger even after the war ends.

3. Crude oil prices ease but trade near $88 a barrel

Brent crude September futures eased slightly but traded near the $88 per barrel level around 3:30 PM, as the US and Iran intensified their attacks in the Middle East, raising concerns over energy supplies through the Strait of Hormuz.

Rising crude oil prices have revived concerns of an inflation flare-up, which could drive the central bank to raise rates. Moreover, elevated crude oil prices can strain India's fiscal position as the country is the world's third-largest importer of crude oil.

“Brent crude spiking above $90 is the strongest headwind. If this trend continues, India’s vulnerability to energy shock will resurface with negative implications for the rupee and FPI flows," VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.

4. Rupee below 96 per dollar

The Indian rupee ended 14 paise lower at 96.44 per dollar, as per provisional figures. The domestic currency hit a record low of 96.9650 in late May.

Experts believe the rupee may weaken further amid a spike in crude oil prices.

A weak rupee is negative for the market, as it exacerbates foreign capital outflows.

5. FPIs hit the sell button again

Foreign portfolio investors (FPIs) offloaded Indian equities worth ₹9,120 crore in the cash segment during last week (13-17 July), according to exchange data.

While FPI flows have tapered recently due to the weakening of the AI and chip trade, higher oil prices and a weakening rupee amid the Middle East conflict could prompt foreign investors to sell Indian stocks aggressively.

"Banking and IT stocks account for a significant portion of FPI portfolios. So, if there is selling pressure from FPIs, these sectors are likely to be hit first. If you look at the cash market, FPIs have been net sellers for the last three to four consecutive sessions. They have turned sellers again, mainly due to rising geopolitical tensions and crude oil prices moving higher once again," Mishra noted.

Nifty 50 technical outlook

Sudeep Shah, the head of technical and derivatives research at SBI Securities, said the immediate resistance for the Nifty is in the 24,370-24,400 zone. Any sustainable move above this zone could extend Nifty's pullback towards 24,550, followed by 24,700 in the short term.

On the downside, the immediate support for Nifty is placed in the 24,130-24,100 zone, said Shah.

Shrikant Chouhan, the head of equity research at Kotak Securities, said 24,000 remains the key level to watch on the downside, while 24,350 is a key level on the upside. As long as these levels remain intact on a closing basis, stock-specific action is likely to dominate.

"A close below 24,000 could open the doors for a decline towards 23,800, whereas a sustained move above 24,350 may pave the way for a retest of 24,500," said Chouhan.

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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.