SENSEX, NIFTY50 plunge, NIFTY Bank drops over 1,000 pts; 5 factors behind Monday’s market crash

The Indian equity benchmark indices crashed on Monday, September 28, dragged by banking stocks while investors remained cautious amid surging bond yields in the United States and rising crude prices.

As many as 48 stocks on the 50-share index were trading in red. Adani Enterprises, Tata Consumer Durables, Tata Motors Passenger Vehicles, Bajaj Auto and Bharat Electronics were the top laggards at the time of writing the article.

The overall market breadth was extremely negative as 2,360 shares were falling while 708 were advancing on the NSE.

Here are the factors contributing to the market fall on Monday

The banking stocks were one of the major laggards, with NIFTY Bank declining over 1,000 points to its intraday low of 54,494.40. Stocks like YES Bank, Union Bank of India, IDFC First Bank, Canara Bank and Punjab National Bank were top losers on the index.

This came on the back of the 10-year US bond yield surging to its highest level in nearly 20 years to 5.2%. Rising bond yields in the US make American bond markets more attractive, leading to a flight of money to the safety of bonds from emerging market equities like India, analysts noted.

When US Treasury yields rise, investors can get a higher low-risk return in US government securities, which makes Indian assets relatively less attractive, analysts added.

Oil-sensitive stocks like Indian Oil, Hindustan Petroleum, Asian Paints, Bharat Petroleum, Apollo Tyres, among several others, declined as investors focused on the increase in global crude prices after the US President rejected the latest peace deal proposal for the West Asia conflict.

The oil sectoral benchmark, Nifty Oil & Gas, declined 1.1% to touch an early market low of 10,739 points on Monday’s market, in comparison to 10,862.15 points at the previous equity market close, according to NSE data.

Equity market investors reacted to the rebounding crude oil prices in the global market, with the benchmark Brent crude oil (November contract) surging to $107 per barrel (bbl), according to data collected from Oilprice.com.

US President Donald Trump turned down the latest Iran peace proposal, which was set to reopen the Strait of Hormuz, citing that the deal was not “acceptable” and that the West Asian country was allegedly looking to open the key trading route within seven days as they are losing the conflict.

"They want to make a deal to open the Hormuz Strait immediately because they're losing ​so badly," Trump told media at the White House on Sunday.

However, in a telephonic interview with Axios, Trump said that he expects the US negotiators to engage in more talks with Iran this ​week.

Iran’s Foreign Minister Abbas Araghchi, acknowledging Trump's rejection of the peace proposal, said that the country would wait for a “definitive” official US response to the deal.

The volatility gauge, India VIX, surged as much as 16.3% to an intraday high mark of the 14.15 level on Monday, following a crash in the equity benchmark indices.

The volatility index is a measure of the market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices" and, in finance, often referred to as risk.

The index also indicates the expected short-term fluctuations in an underlying index. It is expressed as annualised volatility (in percentage terms, e.g., 20%) and is derived from the order book of the index’s options.

The foreign portfolio investors (FPIs) continued to withdraw from the Indian equity market. Last week, in four out of five sessions, the foreign investors pulled sold equities.

According to exchange data, on Friday, the foreign institutional investors (FIIs) sold equities worth ₹3,693.93 crore on a net basis, while the domestic institutional investors (DIIs) purchased ₹2,838.17 crore worth of equities.