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Why Stock Market Crashed Today? Nifty, BankNifty Panic Selling
Table of Contents
Introduction
India has secured its place as the world's fourth-largest stock market in the world, surpassing Hong Kong. However, the recent volatility in the Indian stock market has left investors on edge as bears attack from all sides, triggering panic selling and a significant dip in key indices. Let's dive into the details and understand the factors behind the market disruption.
The Nifty and BankNifty roller coaster Ride
The Nifty, a key benchmark index, experienced a sharp decline of 500 points from the day's high and Bank Nifty a big 1000 points from its record high. The Midcap Index, witnessing its first substantial fall in months, fell by 3%, with 2000 stocks in the red and only 330 managing to be in green.
Notable Plunges
Several major stocks had to face the worst because of this panic selling. Zee, for instance, suffered a historic 30% daily drop, marking the largest fall in its trading history.
HDFC Bank, one of the banking sector giants, recorded a 17% decline in January, the worst month since March 2020. In just 20 days, Bank Nifty slid from 48636 to 45000, and in a mere five trading sessions, it dropped from 48305 to 44886.
Understanding the reason behind this Panic Selling
The obvious question that arises is, why the sudden panic selling? The banking sector emerged as the weakest link, with a 2-3% decline across frontline indices. The midcap index also witnessed a 3% drop, resulting in a staggering total market capitalization loss of 8 lakh crore rupees for all companies listed on the BSE today.
Reasons Behind the Panic Selling
1. HDFC Bank: HDFC Bank, a heavyweight in the market, contributed significantly to the day's losses as its shares dipped by 3%, setting off a domino effect in the banking sector. HDFC Bank is having 29.39% weightage in Bank Nifty.
It’s happening from past few days when HDFC released their quarterly results. Then also we had seen a rapid fall in, not only Indian markets but in US markets too.
2. RIL's Impact: Reliance Industries (RIL), India's most valued company, witnessed a 2% decline, emerging as the second-largest contributor to the overall market fall. Nifty is having 9.11% weightage in Nifty50.
3. Sebi's Ownership Norms: The Securities and Exchange Board of India (Sebi) hinted at tightening ultimate beneficial ownership norms for overseas investors from February 1.
As of March 31, 2023, foreign funds in the high-risk category with a total value of 2.6 lakh crores must disclose their holdings to Foreign Portfolio Investors (FPIs). FPIs are required to disclose if they hold more than 50% of their Indian equity Assets Under Management (AUM) within a single Indian corporate group.
FPIs with investment values exceeding 25,000 crores in the Indian markets must accept these norms. FPIs that fall within these guidelines will not be allowed to make new purchases of Indian stocks until they comply with the rules and regulations.
Subsequently, they have a grace period of 180 calendar days to either liquidate their holdings or make the necessary disclosures.
FPIs were granted a six-month timeframe to either divest their positions or comply with the disclosure requirements.
4. Profit Booking: Investors engaging in profit booking, especially after a prolonged bull run, further added to the selling pressure. From the last few days we have been witnessing the profit booking in major stocks as well which led to the fall. On one hand we have seen some buying on the Domestic Institutional Investors(DII) side but Foreign Institutional Investors(FII) have sold huge in last few trading sessions.
5. Market Jitters: From global cues to the domestic reforms, various factors are playing an important role in the volatility of markets. Fed rates, global disputes on a global level whereas the upcoming budget and elections on a domestic level fueled fear and uncertainty, prompting cautious investors to re-evaluate their positions. The fear and re-evaluation led to a panic selling in the markets.
Conclusion
India's ascent to the fourth-largest stock market globally may be a cause for celebration, but the recent market fluctuations remind us of the inherent volatility in the financial landscape. As investors navigate these difficult times, understanding the underlying factors and staying informed is key to making informed decisions in the ever-evolving world of finance.
Disclaimer: This information is for informational purposes only and should not be considered as investment advice. Always do your research and consult with a financial advisor.
Frequently Asked Questions
The factors leading to the decline in key indices and the performance of major stocks like Zee and HDFC Bank during the market disruption.
The impact of HDFC Bank on panic selling, considering its weightage in Bank Nifty, and examines how its quarterly results affected both Indian and US markets.
The contribution of Reliance Industries (RIL) to the market fall and provides information on its weightage in Nifty50.
The details of Sebi's ownership norms tightening, its impact on foreign investors, and the specific disclosure requirements and grace period provided.
Explores the motivations behind investors engaging in profit booking and provides insights into the contrasting actions of Domestic Institutional Investors (DII) and Foreign Institutional Investors (FII).
