Sensex, Nifty slide as investors lose about Rs 10 lakh crore in a day; Nifty may fall further

The Indian stock market has seen a steep and continuous fall over the past few days. Both the Sensex and the Nifty are down, but smallcap and midcap shares are in the worst shape. Investors have suffered heavy losses, with about Rs 10 lakh crore wiped out in a single day.

Several large brokerage firms and market experts say this phase will not end here. According to them, market conditions could worsen further over the coming months.

Technical analysts have issued a report expressing concern. According to them, if the Nifty breaks the key level of 22,000 and stays below it, the NSE Nifty could fall a further 1,500 to 1,600 points over the next three months. If this estimate proves right, the Nifty could drop straight to the 21,000 level in the coming months. The range of 22,550 to 22,180 is currently seen as highly decisive for the market. If the market fails to recover from this level, the situation could become more serious.

Four major reasons, some global and some domestic, are being cited for Friday's fall.

The first is a record surge in crude oil prices. Brent crude has crossed $114 a barrel. This is the biggest pressure on the market at present. Attacks by Houthi rebels on Saudi Arabia and rising tension near the Bab-el-Mandeb, an important sea route close to the Red Sea, have caused a major disruption in oil supply. India imports a large share of the oil it needs. Costlier oil raises the risk of inflation in the country, pushes up companies' production costs and hurts market sentiment.

The second is continuous selling by foreign institutional investors (FIIs). They have been steadily pulling money out of the Indian market. Data show they have sold shares in large volumes. Shares worth thousands of crores of rupees were sold in a single day, which increased supply in the market and pushed prices down. Domestic institutional investors (DIIs) tried to buy, but found it difficult to absorb the weight of the heavy FII selling.

The third is the sharp blow to midcap and smallcap shares. The slump is not limited to large companies. Smallcap and midcap shares fell more than largecaps. The Nifty Smallcap 100 fell about 4 per cent and the Nifty Midcap 100 about 3 per cent. According to experts, the shares of many small companies had earlier swelled far beyond their fundamentals, so a correction was inevitable.

The fourth is fear of the US Federal Reserve and high interest rates. Rising crude prices have revived concern about inflation in the United States. In such a situation, the US central bank, the Fed, may keep its interest rates high for a long time. When interest rates are high, safe investments offer good returns and investors begin to withdraw money from the stock market.

Current market figures also show weakness. Investors' wealth of about Rs 10 lakh crore was erased in one session. India VIX, which measures market volatility, rose 8 per cent to above 17. This means volatility and uncertainty may continue in the market. Only 24 per cent of shares are trading above their 50-day moving average (DMA), while 22 per cent of shares have slipped below their 2000 DMA. This has left market breadth quite weak.

Experts say crude oil at $114 a barrel is very bad news for both the country's economy and the market. However, a fall in US bond yields and the state of the rupee may provide some relief.

According to technical analysts, the Nifty initially needed to stay above 22,800 to recover. If the Nifty crosses this level, short covering could bring a fresh rally in the market. Otherwise, the shadow of a downturn may persist.