Geopolitical Tensions and Market Regulations Trigger Indian Stock Market Decline

The Indian stock market experienced a significant downturn on October 3, as benchmark indices Sensex and Nifty 50 dropped over two percent, marking their fourth consecutive day of losses. At closing, the Sensex fell by 1,769.2 points, or 2.1 percent, settling at 82,497.10. Similarly, the Nifty 50 recorded a decrease of 529.90 points, or 2.05 percent, concluding at 25,267.00.

This decline was not limited to these indices but extended to broader markets and sectoral indices, all closing in the red. The Nifty Realty index was the biggest loser, falling over 4 percent, followed closely by Nifty Auto and Bank Nifty. Market anxiety was evident as the India VIX, a measure of market volatility, spiked over 14 percent to 13.7.

One significant factor contributing to the market sell-off was the heightened geopolitical tensions in the Middle East, particularly following Iran‘s missile attacks on Israel. Israeli Prime Minister Benjamin Netanyahu has vowed a strong retaliation, leading to concerns of an escalating conflict that could impact global markets.

The unrest in the Middle East has also influenced crude oil prices, with Brent crude climbing to nearly $75 a barrel. This surge was driven by fears that the conflict might disrupt oil supplies, posing a challenge for oil-importing countries like India, if key installations are attacked.

Additionally, the Securities and Exchange Board of India’s (SEBI) recent measures to curb futures and options (F&O) trading volumes by 30-40 percent are also influencing market dynamics. The regulatory move, intended to reduce speculation, has raised liquidity concerns within the derivatives market.

Adding to these challenges is the shift in global investment portfolios, as several fund managers redirect their focus toward Chinese equities following China’s latest stimulus package. Market expert Adrian Mowat highlighted the possibility of foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) reallocating resources from India to China, due to more attractive valuations in the Chinese markets.

Some investors are also engaging in profit booking after a prolonged bull run in Indian equities, as noted by Ruchit Jain, Lead – Research at 5Paisa.com. “The market data indicated a possible correction, pointing to heavy positions by FIIs and overbought conditions,” Jain mentioned.

Experts like Santosh Meena from Swastika Investmart view this correction as an opportunity to buy large-cap stocks at more attractive valuations. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggested cautious optimism and a partial move to defensive sectors such as pharmaceuticals and fast-moving consumer goods (FMCG).