Indian Stock Markets Tumble Amid Election Jitters and Global Weakness

On Wednesday, May 29, 2024, Indian stock markets witnessed intense selling pressure, resulting in significant declines across key indices. The S&P BSE Sensex dropped 631 points intraday to hit a low of 74,539, while the NSE Nifty50 slipped 183 points to a low of 22,705.

Prominent laggards in the large-cap space included SBI Life, HDFC Life, ICICI Bank, Ultratech Cement, Tech Mahindra, HDFC Bank, Bajaj Finserv, Axis Bank, Tata Consumer Products, BPCL, and ONGC, each falling between 1% and 3%. The broader market also felt the pressure, with the BSE MidCap index slipping nearly 1% intraday.

Analysts attribute the ongoing market volatility to nervousness ahead of the Lok Sabha election results, due on June 4, 2024. While there is confidence that the ruling Bharatiya Janata Party (BJP) will return to power, fears of a low margin of victory potentially hindering bold reforms have unsettled investors. A Bloomberg News survey suggests that Indian stocks need Prime Minister Narendra Modi’s party to secure more than 303 seats to maintain their record rally, warning that a smaller majority could result in a 2% drop in the NSE Nifty50 Index.

The nervousness was compounded by weakness in global markets. Asia-Pacific markets ended sharply lower, with the Kospi and Hang Seng tumbling 1.7% each, the ASX200 dropping 1.3%, and the Nikkei falling 0.8%. European markets also opened lower following their worst session in a month, with the FTSE100 down 0.22%, DAX 0.4%, CAC40 0.5%, and Stoxx600 0.4%. In the US, futures tied to the Dow Jones, S&P500, and Nasdaq were down 0.3% each in pre-market trading, as Wall Street anticipated the second estimate of Q1CY24 GDP data set for release on Thursday, May 30.

Higher bond yields have also played a role in the market’s downturn. US bond yields are back above 4.5%, and Indian 10-year government bond yields are above the 7% mark, making debt investments more attractive and reducing the risk-reward appeal of equity investments. Furthermore, relatively expensive valuations in Indian equities have led foreign investors to book profits, with FIIs selling shares worth Rs 34,935.53 crore so far in May.

From a technical perspective, senior analyst Osho Krishan of Angel One noted that the 22,800-22,700 levels are likely to act as immediate support for the Nifty, with a significant hurdle at the 23,000 mark, followed by the lifetime high zone around 23,100.

This marked the fourth consecutive session of losses for Dalal Street, as investor anxiety heightened ahead of crucial US inflation data expected later this week. The data is anticipated to provide insights into the Federal Reserve’s future interest rate decisions.

Prashanth Tapse, Senior VP (Research) at Mehta Equities, highlighted the caution warranted by the India VIX reaching a two-year high of 24.20, ahead of significant events like exit polls and GDP data. Deven Mehata, Research Analyst at Choice Broking, suggested that the Nifty could find support at 22,800, with immediate resistance levels at 22,950 and 23,000. Mehata advised traders with long positions to set a strict stop loss at 22,800 on a closing basis.

In summary, the combination of domestic political uncertainties, global market weaknesses, and technical factors contributed to a tumultuous day for Indian stock markets. Investors are advised to tread cautiously as key economic and political events loom on the horizon.