On Thursday, November 21, Indian stock market benchmarks, the Sensex and Nifty 50, experienced a sharp downturn, plunging by over 1% each in early trade. This marked a stark reversal from modest gains seen in the previous session. The market sentiment was primarily influenced by weak global cues, coupled with domestic challenges. Investors across the country faced a significant sell-off, with mid and small-cap stocks also taking a hit.
The market capitalization (m-cap) of BSE-listed companies shrank by nearly ₹6 lakh crore, falling from ₹431 lakh crore in the previous session to around ₹425 lakh crore. This decline in m-cap reflected the broader sell-off and left investors poorer by a substantial margin in a single trading day.
Market Opens Lower, Continues to Decline
The Sensex opened at 77,711.11, slightly higher than its previous close of 77,578.38. However, it dropped by about 1% to reach 76,802.73 within hours. The Nifty 50 also opened at 23,488.45, against its previous close of 23,518.50, and fell more than 1%, touching 23,263.15. By 11:20 AM, the Sensex was down by 0.7%, while the Nifty 50 had lost 0.8% of its value.
This bearish trend was attributed to a variety of factors, both from domestic and global fronts, which led to market anxiety.
Key Factors Driving the Market Down
The stock market’s downward trajectory on Thursday was influenced by multiple ongoing issues that continue to plague investor sentiment. These factors range from corporate performance concerns to geopolitical tensions, each playing a role in this broad-based market selloff.
Here are the five key reasons contributing to the decline:
1. The Adani Saga: Legal Trouble Deepens
The Adani Group was a major factor behind the steep fall in the market. Shares of Adani Group companies, including Adani Enterprises and Adani Ports, hit their lower circuits early in the trading session following the US indictment of Gautam Adani, the chairman of the conglomerate, and other senior executives.
The US authorities have accused the Adani Group of orchestrating a multibillion-dollar bribery and fraud scheme. They claim that more than $250 million in bribes were offered to Indian government officials to secure solar energy contracts. As a result, Adani Enterprises and Adani Ports saw their stocks plummet by 23% each, with both stocks being among the top losers in the Nifty 50 index around 11:30 AM. This legal setback added more volatility to the already fragile market sentiment.
2. Weak Q2 Earnings Put a Damper on Investor Confidence
The disappointing Q2 earnings from several major companies also contributed to the overall market decline. Many companies showed weak results for the July-September quarter, failing to meet market expectations and prompting concerns over economic growth.
A report by Mint highlighted that the combined revenue of the 2,996 BSE-listed companies that were part of the analysis rose by 8.1% year-on-year (y-o-y), which was slower than the 9.5% growth seen in the first quarter. Consequently, net profit growth slowed down to 8.9% from the 9% growth observed in Q1.
The BFSI sector (Banking, Financial Services, and Insurance) continued to be a bright spot in an otherwise weak earnings season. Without the BFSI sector’s positive performance, overall revenue growth would have decelerated to just 4.6%, down from 6.3% in the previous quarter. Similarly, net profit growth in non-BFSI sectors was dismal, rising just 4.4%, up from 3.3% in Q1.
Sneha Poddar, VP of Research and Wealth Management at Motilal Oswal Financial Services, remarked, “Global cyclicals, such as oil and gas, along with metals, cement, chemicals, and consumers, weighed on earnings growth. Consumption has emerged as a weak spot, while select segments of BFSI are experiencing asset-quality stress. Weakness in government spending has also been one of the factors driving moderation in earnings.”
3. Geopolitical Tensions Add to Global Market Weakness
The global markets also weighed heavily on Indian investor sentiment. Continued geopolitical tensions around the world, particularly related to ongoing conflicts and economic instability in key markets, contributed to a sense of caution among traders. These external factors often lead to capital outflows from emerging markets like India, adding to the downward pressure on stock prices.
4. Concerns Over Valuation Levels
Another significant concern for the market has been the stretched valuation levels of stocks. After a prolonged period of market growth, many investors began questioning whether stock prices were becoming too high, given the underlying economic challenges. This concern has led to profit-booking and a general sense of caution among traders.
5. Rising Inflation and Interest Rate Hikes
The prospect of rising inflation and potential interest rate hikes by central banks, particularly in the United States, is another factor creating uncertainty. Higher rates could lead to reduced liquidity and a slowdown in economic growth, negatively impacting corporate earnings and stock prices.
