Stock market meltdown: Why Sensex tanked over 900 points today

Benchmark equity indices fell sharply on Tuesday, with the S&P BSE Sensex plummeting by over 900 points and the NSE Nifty50 slipping below the 24,500 mark.
At the closing bell, the Sensex plunged 930.55 points to 80,220.72, while the Nifty fell 309 points to 24,472.10. The sharp decline wiped out over Rs 9 lakh crore in the BSE’s market capitalisation, leaving many investors reeling.
So, what exactly triggered this market meltdown? Here are the key factors at play:
After a decent run in recent weeks, it seems investors decided it was time to take some profits off the table. Analysts indicated that the signs of a potential economic slowdown weighed heavily on investor sentiment. While the Indian market is often seen as a “buy-on-dip” space, the current high valuations prompted a necessary correction. It’s not unusual for markets to adjust, ensuring that valuations align with longer-term averages.
Foreign institutional investors (FIIs) have been on a selling spree this month, setting a record for share offloading. By October 21, they had sold off an eye-watering Rs 88,244 crore in shares, according to NSDL data. Just yesterday, FIIs offloaded Rs 2,261.83 crore while domestic institutional investors (DIIs) stepped in to buy Rs 3,225.91 crore worth of stocks. This dynamic highlights a tug-of-war between international and domestic investors.
Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said, “There has been no respite from FIIs selling in local equities in the current month so far, which has been creating uncertainty among the domestic investors. Also, foreign investors are fleeing Indian equities to invest in relatively cheaper locations such as China, especially after the stimulus announcement by its government to boost its slowing economy.”
“Along with sectoral stocks, mid and small-cap stocks too bore the brunt as persistent buying had led to valuations in several stocks getting expensive and hence the breather.”
The bearish sentiment wasn’t confined to Indian shores; it was felt across Asia as well. Japan’s Nikkei fell by 1.39%, and South Korea’s Kospi index dropped 1.31%. Vinod Nair, Head of Research at Geojit Financial Services, remarked that rising US bond yields have dampened expectations for aggressive rate cuts by the Federal Reserve, impacting fund flows into emerging markets like India.
“Bearish sentiment continued to dominate the domestic market today amid heightened volatility, with small and midcap stocks taking the biggest hit. The recent sharp rise in US bond yields signals diminished expectations for aggressive rate cuts by the US Fed, also affecting fund flows to EMs. In the short term, this bearish outlook may persist due to sluggish earnings growth trends,” Nair said.
Every sector felt the heat today, with heavyweights like Reliance Industries, HDFC Bank, and TCS contributing significantly to the downturn. The mid and small-cap segments bore the brunt, plummeting by 2.61% and 3.92%, respectively. This downward spiral of lower highs and lows indicated a tightening grip of bears on the market. The Nifty closed at 24,472.10, marking a loss of 309 points.
Despite the grim outlook, analysts suggest that a short-term bounce could be on the horizon due to oversold conditions in the mid and small-cap sectors. However, the upside may be capped, with resistance anticipated around the 24,670 mark and support levels lying between 24,370 and 24,430.
Ajit Mishra – SVP, Research, Religare Broking Ltd, said, “The markets continued their downward trend, losing over a percent in an ongoing corrective phase. After a flat opening, Nifty gradually declined and approached a crucial support level at the 100-day exponential moving average (DEMA). The selling pressure was broad-based, with realty, metal, and auto sectors among the worst affected. Notably, the midcap and smallcap segments saw a sharp decline, shedding between 2.75% and 3.65%.”
“Nifty has now corrected by around 7% from its record high, reaching the critical moving average support at the 100 DEMA i.e. 24,485 level. The outlook suggests further downside, particularly in the midcap and smallcap spaces,” Nair noted. “On the index front, the next major support is around 24,000, with potential resistance between 24,700 and 25,000 in case of a rebound. We recommend adjusting trades accordingly and advise against adding to losing positions”.
Today’s dramatic market movements serve as a stark reminder of the volatility inherent in equity investing. As investors digest this downturn, all eyes will be on upcoming economic indicators and corporate earnings reports to gauge the market’s future direction. The Reserve Bank of India’s optimistic GDP growth forecast of 7.2% for FY25 suggests that this current slowdown might be a temporary phase, potentially offering hope for a recovery in market sentiment in the near future.
While today’s nosedive is concerning, it’s also a reminder of the cyclical nature of markets. With strategic decision-making and patience, investors may find opportunities even amid uncertainty.