The Indian stock market collapsed on Thursday, with the major indices, the Sensex and Nifty 50, opening more than 1% lower due to weak global signals and growing worries of a full-fledged conflict between Iran and Israel over geopolitical tensions in the Middle East.
The Nifty 50 opened 344.05 points, or 1.33%, lower at 25,452.85, while the Sensex fell 1,264.20 points, or 1.50%, to open at 83,002.09. In four sessions, the Nifty 50 has down 3%.
The new guidelines for trading derivatives by the Securities and Exchange Board of India (SEBI) and mixed cues from Asian and US stock markets during the course of the night also affected market mood.
The following five main causes of today’s stock market meltdown in India are:
Iran – Israel Conflict
After Iran launched a volley of almost 200 missiles towards Israel on October 1 in revenge for the assassination of Hezbollah’s Hassan Nasrallah, tensions in the Middle East increased. With Tehran threatening to launch a more powerful attack if it is targeted, Israel has pledged to make Iran “pay” for the attack on its territory. Israel also declared that it had started small-scale land operations in Lebanon to attack the Hezbollah group, which is supported by Iran.
According to the most recent information, an Israeli attack on a medical facility in the heart of Beirut resulted in at least six fatalities and seven injuries, according to the Guardian.
SEBI F&O Regulations
The equity derivatives trading regulations were tightened by market regulator Sebi, which increased the entry barrier and increased the cost of trading in the asset class. Sebi published a number of new criteria in its most recent circular, including a nearly three-fold increase in the minimum trading amount and a limit on the number of weekly options contracts that can be traded on any given exchange.
The CEO and fund manager of Whitespace Alpha, Puneet Sharma, thinks that although these barriers can increase market resiliency, they also present difficulties.
According to him, the issue now is for market participants to conform with these higher compliance criteria while attempting to sustain innovation and growth.
Crude Oil Prices
Crude oil prices traded higher as worries of a further escalation in the Middle East deepened, fuelling anxieties that oil supplies from the world’s largest producing region may be jeopardised if the conflict develops. An increase in the price of oil is detrimental to countries that import the commodity, such as India, since crude accounts for a large portion of the import cost.
US West Texas Intermediate crude prices increased 1.03% to $70.82 a barrel, while Brent crude futures up 0.87% to $74.54 a barrel.
FII Selling
The foreign institutional investors (FIIs) extended their selling as they sold equities worth ₹5,579.35 crore on October 1, while domestic institutional investors extended their purchasing as they bought equities worth ₹4,609.55 crore on the same day.
Technicals
The Nifty 50 broke through the 25,700 and 25,500 downward support levels.
“A break below these levels could trigger additional selling of 300 – 500 points. Traders with long positions are advised to book profits near resistance zones and wait for dips to re-enter buying positions,” said Hardik Matalia, Derivative Analyst at Choice Broking.