Sensex plummets more than 1,000 points: Why is the stock market down today
Today was a rude awakening for investors, with the Sensex plummeting more than 1,000 points, demonstrating an across-the-board sell-off. The market had been resilient over the recent sessions, but it changed direction abruptly due to a cocktail of factors that sent traders running with a decline in sentiment about macroeconomic conditions.
Global Cues Flip
The trend at the global market level is one of the contributors to today’s fall. The overnight loss on Wall Street was impacted by both a rise in US bond yields and new fears of interest hikes. This left a negative tone for US investors. Therefore given the pan-Asian losses, it is not a surprise to see most markets in the Asian region adopted a general selling strategy.
FII Ended Heavy Selling
Foreign Institutional Investors (FIIs) had pumped big money into Indian equities over the last few weeks and today all of a sudden, unceremoniously flipped to being net sellers. This has triggered panic with domestic retail investors. Additionally, the consideration of which macroeconomic factors would contribute to a potential global economic slowdown and maintained heightened tensions globally appear to bring caution to major FIIs resulting in large outflows.
IT and Bank Stocks Take the Brunt of Downturn
The sharp downward movement of stock indices was almost entirely attributable to IT and Bank stocks. Poor guidance from global tech giants and cautious comments on hiring and spending put further pressure on our Indian IT firms, and fresh concerns on inflation and interest rate outlook also weighed on Bank stocks.
Profit Booking Ahead of Economic Data
The reason for some of the sell off was that market participants are now actively booking their profits ahead of upcoming domestic economic data releases, such as inflation and Indian IIP. There are many unknowns at the moment and a lot of traders are just preferring to stay in cash ahead of these economic datapoints.
What Should Investors Do?
The fall is sharp, but longer term investors should not panic. Market down cycles often lead to volatility, that can provide good entry points for quality stocks. We know that we always need to focus on the fundamentals of the businesses we invest in they will lead us through any short term volatility. One important theme for investors to consider is to maintain a diversified portfolio.
