Sensex plunges 3,326 points in 2 sessions; investors lose ₹18 lakh crore— Key factors behind market selloff explained

The Indian stock market suffered strong losses for the second consecutive session on Monday, March 30, with the Sensex and the Nifty 50 crashing over 2% each.

The Sensex crashed 1,636 points, or 2.22%, to end at 71,947.55, while the Nifty 50 plunged 488 points, or 2.14%, to settle at 22,331.40.

The selloff was broad-based as the BSE 150 Midcap and BSE 250 Smallcap indices crashed 2.51% and 2.57%, respectively.

Over the last two consecutive sessions, the Sensex suffered a cumulative loss of 3,326 points, or 4.42%, while the Nifty 50 plunged 975 points, or 4.18%. Investors' wealth was eroded by more than ₹18 lakh crore in just two sessions as the overall market capitalisation of BSE-listed firms dropped to below ₹413 lakh crore on Monday from ₹431 lakh crore on Thursday.

What drove the Indian stock market down?

Here are the key factors behind the stock market crash:

1. The US-Iran war

The US–Iran war, which began on February 28, has now extended beyond a month, with conflicting signals about whether it will end in the near future.

US President Donald Trump extended the pause on strikes against Iran's energy infrastructure last week. However, there has been little progress towards a complete resolution to the conflict.

As media reports suggest, the Trump administration sent a 15-point ceasefire plan to Iran. However, no formal talks have taken place so far, even though the two sides have been communicating through back channels and intermediaries, including Pakistan’s efforts to act as a mediator.

Meanwhile, Yemen-based Houthis, who are supported by Iran, have joined the West Asian war and said that they would continue the operations until US-Israeli attacks on Iran and its proxy militant groups, including Hezbollah in Lebanon, cease, according to Bloomberg.

"With the conflict in West Asia entering the fifth week, there are signs of escalation of the war with the Houthis joining the conflict and the US sending additional troops to reinforce the attack," VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.

2. Crude oil prices jump

Brent Crude prices surged further, trading above the $115 per barrel mark as uncertainties over the US-Iran war persist. The Strait of Hormuz, through which around 20% of global crude oil and LNG pass, is still effectively closed to most shipping.

Concerns are rising that elevated crude oil prices will damage India's macroeconomic outlook, as the country is the world's third-largest importer of crude oil. It meets about 85-90% of its oil requirements through imports.

"Brent crude has again shot up to $116. The Goldilocks macro scenario that India had before the war has almost disappeared due to the war. Instead of high GDP growth, low inflation, moderate fiscal and current account deficits and expectations of higher corporate earnings growth in FY27, now we face prospects of lower GDP growth, higher inflation, higher fiscal and current account deficits and lower earnings growth for FY27," Vijayakumar noted.

3. India VIX rises to 28 mark

The volatility index, India VIX, jumped 4% to 28, indicating fragile market sentiment.

According to market experts, the normal range for the volatility index is 12 to 15. A level above 15 indicates the market is discounting high volatility over the next 30 days.

A jump in India VIX to 28 reflects increasing nervousness in the Indian stock market amid indications that the US-Iran war could persist, potentially disrupting energy supplies, triggering global inflationary pressures, and puncturing global growth momentum.

4. Relentless FPI selloff

Foreign portfolio investors (FPIs) have been relentlessly selling Indian stocks amid the raging war in West Asia.

According to NSDL data, FPIs have pulled out ₹1,23,025 crore from the Indian financial market in March till the 27th.

FPIs' equity assets fell by $79 billion to $710 billion in the fortnight ended 15 March— the steepest fortnightly decline in at least six years, even exceeding the COVID-19 pandemic-triggered selloff.

5. Rupee breaches 95 mark

According to Bloomberg data, the Indian rupee fell 42 paise during the session to hit a new record low of 95.2350. The weakness of the domestic currency is one of the biggest factors behind massive foreign capital outflow and stock market weakness.

6. Monthly F&O expiry

The March series of futures and options (F&O) contracts ended on Monday, March 30, as Tuesday, March 31, is a stock market holiday on account of Shri Mahavir Jayanti.

The stock market remains highly volatile on the F&O expiry day due to heightened short-term speculations as traders exit positions or roll them over to next month.

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Disclaimer: This story is for educational purposes only. 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.