Investor wealth eroded by Rs 7.3 lakh crore as Sensex crashes 1,000 points. Here are key factors behind the mayhem

Indian headline indices plunged on Thursday amid broad-based selling pressure. The S&P BSE Sensex tanked 1,130 points to the day's low of 72,334.18. The broader Nifty50 shed 370 points and slipped below the 22,000 mark intr-day for the first time since April 19.

While Sensex ended the session at 72,404.17, down by 1062.22 points or 1.45%, the 50-stock Nifty settled at 21,957.50, lower by 345 points or 1.55%.

Q4 earnings and election uncertainty have dented the Street sentiments. The volatility index India VIX also spiked 6.5% to 18.20 levels, gaining for an eleventh straight session.

D-Street investors lost Rs 7.3 lakh crore in trade on Thursday as the market capitalisation of BSE-listed companies slipped below the Rs 400 lakh crore mark to Rs 393.73 lakh crore.

Here are a slew of factors that led to today's steep slide:

1) Poll Pressure

With three phases of the general elections 2024 behind us, uncertainty has hit the Street, with a visible drop in the pre-election exuberance.

Though Prime Minister Narendra Modi's prospects of getting re-elected is a consensus view, Street is keenly tracking the margin of win for the incumbent government.

"The rise in volatility can be attributed to the fear of the BJP-led National Democratic Alliance getting a weaker-than-expected majority," Abhishek Goenka, founder and chief executive of IFA Global told Reuters.

"We have seen immediate reversals in the Nifty after hitting fresh highs and this tells a lot about the jitters that the market has on account of the big event."

Also Read | With stock slump and fear gauge spike, is D-Street predicting something in Lok Sabha result?

2) Heavyweights Drag

Index heavyweights HDFC Bank and Larsen & Toubro (L&T) were the top contributors to the market crash. L&T dropped nearly 6% due to lower margins in the core E&C segment and reduced revenues from its subsidiaries in Q4. The stock ended at Rs 3,289.95 on the NSE, down by 197 from Wednesday’s closing price. Strong selling pressure in Reliance Industries (RIL) and ITC also added to the market woes.

Banking gauge Nifty Bank fell 533.20 points or 1.11% to close at 47,487.90 while Nifty FMCG was the worst performer in the pack, sinking 1,400 points or 2.5% to finish at 54,625.10.

3) Lack of Positive Global Cues

Stocks edged lower before the Bank of England’s rate decision and data on US initial jobless claims.

Europe’s Stoxx 600 was little changed after a four-day run of gains, while futures on the S&P 500 pointed to declines at the Wall Street open. S&P 500 futures fell 0.1%, Nasdaq 100 futures fell 0.2% and The MSCI Asia Pacific Index fell 0.1%

4) Earnings Impact

Market also reacted to earnings announcements by top companies. While banks including State Bank of India (SBI) and Canara Bank reported strong Q4 numbers, Street was unimpressed with Asian Paints earnings. The stock plunged over 5% in intra-day trade.

Among others, shares of Hindustan Petroleum Corporation (HPCL) fell over 4% after the company reported a YoY decline in its Q4 net profit at Rs 2,709.31 crore versus Rs 3,608.32 crore in the year-ago period.

The muted cues from the Q4 earnings of large-cap companies have further dampened investor sentiment, said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services.

5) FPI selling

Selling by Foreign Portfolio Investors (FPIs) have weighed on the overall sentiment as they have been net sellers so far in 2024. FIIs offloaded Indian equities worth Rs 2854 crore on May 8. Continuing their selling trends in March, FPIs have sold shares worth Rs 5,076 crore in nearly a week.

6) Oil Prices Rise

Oil prices rose in early trade on Thursday as shrinking US crude inventories signalled tighter supply, and amid rising hopes that the Federal Reserve would cut interest rates by the end of the year.

On the Comex, Brent crude futures for July rose 49 cents to $88.01 a barrel while the US West Texas Intermediate crude for June was up 49 cents to $79.48 per barrel.

7) Technical View

"The market is continuously witnessing pressure ahead of the election outcome. We don't have any global reason for this correction, while some uncertainty ahead of the big event is causing profit-booking in the market. Our market has been largely driven by domestic investors, including both HNIs and institutional investors, for the last few months," said Santosh Meena, head of research at Swastika Investmart.

Meena said they are now sitting on the sidelines for the last couple of days and taking some profit off the table ahead of the big event, while FIIs are continuously selling in the Indian market, which is pushing the market lower.

The Volatility index, India VIX, has risen 70% from its lows, which is also creating some uncertainty among traders and investors.

The analyst sees Nifty getting support at 22,000-21,700 zone. While he expects a potential bounce from this zone considering markets are oversold, a significant upward move in Nifty will likely happen once it breaks above the 22,500 resistance level.