Sensex, Nifty crash in morning but recovery after some time - What led to bounce back in markets?

Domestic stocks staged a strong recovery from Friday's intraday lows on September 11, recouping much of their opening losses as global crude oil prices retreated following their recent surge, triggering buying in oil-sensitive stocks. Technically, the latest sell-off had also pushed the frontline indices into oversold territory, prompting value buying at lower levels.

The Nifty 50 rebounded 0.72% from its intraday low but still ended the session 0.34% lower at 23,398. Similarly, the Sensex recovered sharply from its lows but closed 0.16% lower at 74,78.

The strong intraday recovery also made domestic equities relative outperformers, as major Asian markets closed with steep losses. Japan's Nikkei 225 dropped 1.9% to 64,011.34, while South Korea's Kospi lost 1.8% to 6,909.91.

Hong Kong's Hang Seng declined 0.7% to 24,789.07, the Shanghai Composite fell 1.2% to 3,888.11, and Taiwan's Taiex slipped 1.6%.

What led to the sharp recovery in the Indian stock market?

Auto stocks provided much-needed support to the market recovery, with the Nifty Auto index rebounding nearly 1% from its intraday lows as crude oil prices declined. Meanwhile, selective buying in financial stocks helped the Nifty Bank index recover 1.61% from its intraday lows to end the session higher.

The recovery in auto stocks came as oil prices retreated in Asian trade after climbing sharply earlier amid escalating tensions between the US and Iran. Brent crude, the international benchmark, fell 2.3% to $105.14 per barrel after earlier rising above $108.

The benchmark had traded at around $72 a barrel in late February, before the war began. US benchmark West Texas Intermediate (WTI) crude was down 2% at $100.46 per barrel.

Despite Friday's pullback, the latest escalation in the region could put further pressure on global energy supplies, which have already been disrupted over the past six months as traffic through the Strait of Hormuz has remained largely halted.

Adding to concerns, Iran-aligned Houthis seized control of Yemen's port city of Mocha on Thursday and advanced down the Red Sea coast towards strategic islands, Reuters reported, citing military sources. The development came hours after President Donald Trump said he expected the Iran war to end after the US midterm elections.

For India, the risks from elevated crude prices are particularly significant, as the country meets more than 80% of its crude oil requirements through imports. A sustained increase in oil prices could add to inflationary pressures and weigh on the rupee. If crude prices remain elevated for an extended period, higher input costs could also hurt companies' profit margins.

These concerns come at a time when Indian equities have already been struggling to attract overseas investor interest. Even though June-quarter earnings came in ahead of analysts' estimates, they failed to revive investor sentiment, as investors appear to be finding better opportunities elsewhere in Asian markets, supported by their greater exposure to the artificial intelligence theme.

India's relatively limited AI exposure has been seen as one factor reducing its appeal to overseas investors, contributing to the continued pressure on domestic equities.

Can oversold levels trigger a quick pullback rally?

Amol Athawale, VP Technical Research at Kotak Securities, said the short-term texture of the market is weak, but oversold levels suggest a strong possibility of a quick pullback rally from the current levels is not ruled out.

For traders, Athawale said the immediate support zone is around 23,200/74,200. If the market manages to trade above this level, a bounce could continue till 23,500/75,000.

Further upside may also extend, Athawale said, lifting the index to around 23,700–23,750/75,500–75,800.

Conversely, Athawale said if the market falls below 23,200/74,200, selling pressure is likely to accelerate. Below this level, the market could retest the levels of 23,000–22,900/73,700–73,500.

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