Indian Stock Market Witness Biggest Single-Day Loss Since June 2022: 5 Key Reasons Explained

The Indian stock market witnessed a significant downturn on Wednesday, with the benchmark Sensex and Nifty 50 experiencing their biggest single-day percentage loss since June 2022. This decline was primarily driven by widespread selling and weak global cues.

The Sensex dropped 1,628.01 points, or 2.23%, to close at 71,500.76, while the Nifty 50 ended 460.35 points, or 2.09%, lower at 21,571.95.

Most sectoral indices closed in the red, apart from Nifty IT. The banking sector stocks were hit the hardest, particularly HDFC Bank, whose share price plunged more than 8% after reporting its December quarter earnings. As a result, the Nifty Bank fell by 4.28%.

The market had been witnessing a notable rally, with the Nifty 50 crossing the 22,100 mark in the previous session. Analysts suggest that investors may have opted to book some profits amid concerns over stretched valuations in the midcap and smallcap segments.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, emphasized that although the domestic economy and corporate earnings are performing well, the current market prices have already factored in these positives. The midcap and smallcap space is overvalued and sustained at high levels primarily due to liquidity. Thus, he suggested that some profit booking and reallocating funds to fixed income instruments may be appropriate now.

Weaker global market cues also contributed to the decline in domestic indices. Asian markets traded in the red, and the US stock market indices closed lower due to rising bond yields.

US Treasury yields increased on Tuesday after central bankers in Europe and the United States pushed back against market expectations of imminent interest rate cuts. The benchmark US 10-year Treasury note’s yield rose by over 11 bps to 4.064%, which weighed on risky assets.

Vijayakumar further explained that the rising bond yields in the US, reflecting concerns about anticipated rate cuts, will likely result in a slight near-term weakness in global equity markets. He cited remarks made by US Federal Reserve Governor Christopher Waller, indicating that the US is close to achieving the 2% inflation goal. However, Waller cautioned against rushing to cut the benchmark interest rate until sustained lower inflation is evident.

The Nifty 50 index formed a spinning top candlestick pattern on January 16, indicating a potential bearish divergence. In terms of technical levels, Aditya Gaggar, Director of Progressive Shares, highlighted 22,120 as a resistance point and identified immediate support at 21,930, with strong support at 21,800. He also mentioned that Bank Nifty’s upside seems capped at 48,300, with 47,560 serving as strong support.