Sebi F&O, Iran-Israel war: Why did the Sensex fall more than 1,800 points on Thursday?

Conflict between Iran and Israel: Should stock market investors be concerned?Sebi F&O, Iran-Israel war: Why did the Sensex fall more than 1,800 points on Thursday?

The BSE Sensex dropped as much as 1,832.27 points, or 2.17%, to 82,434.02 as its intraday low. Likewise, the Nifty50 declined 566.6 points, or 2.19%, and reached an intraday low of 25,230.30.

On Thursday, October 3, 2024, the BSE Sensex and NSE Nifty50, two key Indian indexes, plummeted as a result of growing tensions between Iran and Israel.
The BSE Sensex hit an intraday low of 82,434.02, falling as much as 1,832.27 points, or 2.17 percent. Comparably, the Nifty50 fell 2.19 percent, or 566.6 points, to an intraday low of 25,230.30.

Only JSW Steel, Sun Pharma, and Tata Steel out of 30 Sensex equities were positive; the most negatively impacted companies were Asian Paints, L&T, and Bajaj Finserv.

The Nifty MidCap index fell 2.43 percent, while the Nifty SmallCap index fell 2.34 percent. Broader markets also saw decreases.
With Nifty Realty down more than 4% and Nifty Auto down 3%, all the sectors were likewise trading negatively.

Meanwhile, the volatility index for Indian bourses, India VIX, rose up to 13.93-mark intraday.

“A number of reasons have contributed to the recent dramatic fall in the Indian stock market from its all-time highs. First, rising crude oil prices are a direct result of geopolitical tensions, and this is usually bad news for Indian stocks. Secondly, there has been a considerable outflow of Foreign Institutional Investor (FII) money from India to China over the previous few days, increasing pressure on large-cap equities.

Finally, Santosh Meena, head of research at Swastika Investmart, said that concerns about high valuations and profit booking ahead of state elections had contributed to the negative pressure.

Primary causes of the Nifty and Sensex decline:

Israel-Iran confrontation becoming worse

One major element influencing market performance is the persistent tensions in the Middle East. According to reports, an Israeli strike on a medical facility in Beirut resulted in a minimum six fatalities and seven injuries.

Benjamin Netanyahu, the prime minister of Israel, promised to take revenge on Iran for firing almost 200 ballistic missiles at his country.

When Iran launched missiles toward Tel Aviv and Israel announced that eight soldiers had died while conducting operations in southern Lebanon, the situation worsened even worse.

Nevertheless, UN Secretary-General Antonio Guterres characterised the state of affairs as characterized by “escalation after escalation.

FIIs are selling like crazy: Thus far this year, foreign institutional investors, or FIIs, have net sold stocks valued at Rs 1.25 trillion crore.

In the first nine months of the year (2024), Foreign Institutional Investors (FIIs) had sold Indian shares in five of those months. This pattern, where FIIs are switching to Chinese equities because of lower valuations, indicates a cautious attitude towards the Indian market amid global uncertainty.

FIIs unloaded shares valued at Rs 35,977.81 crore in January and then sold more shares for Rs 15,962.72 crore in February. A small break came in March when they bought Rs 3,314.47 crore; however, this was only temporary, as they sold Rs 35,692.19 crore in April and Rs 42,214.28 crore in May.

A small purchase of Rs 2,037.47 crore in June and another shopping binge of Rs 5,407.83 crore in July followed the same trend. But in August, there was still another significant sell-off, as FIIs unloaded shares valued at Rs 21,368.51 crore. In September, however, they made a comeback, purchasing shares valued at Rs 15,423.32 crore.
Notably, FIIs continued to sell on October 1st, unloading shares valued at Rs 5,579.35 crore. This suggests that investors are still being cautious about the state of the market.

According to analysts, FIIs may keep selling as money moves into optimistic Chinese equities and the comparatively cheap Hong Kong market. According to V K Vijayakumar, chief investment strategist at Geojit Financial Services, this tendency may endure given the high valuations in India.

An increase in oil prices: Rising Middle East tensions have caused significant volatility in crude oil prices, with the global market seeing a five percent increase in only two days. Examine Current Oil Prices
Oil prices have increased as a result of the region’s increased anxieties following Iran’s missile attacks on Israel earlier this week. Prices may rise much more as a result of Israel’s threats of possible retribution, particularly if it entails hitting Iran’s oil infrastructure.
Meanwhile, OPEC+ reiterated intentions to raise output beginning in December as it wrapped up its meetings this week.

The US Energy Information Administration (EIA) reports that US crude oil stockpiles increased by 3.9 million barrels, vs a 1.5 million barrel decrease that was anticipated. The recent increases in the price of crude oil have been partially offset by this increase.

“We expect today’s session to see more volatility in crude oil prices. Crude oil has important support levels between $69.55 and 68.90, and resistance between $71.70 and 72.40. According to Rahul Kalantri, vice president of commodities at Mehta Equities, “support is at Rs 5,880–5,800, while resistance is at Rs 6,050–6,140 in INR terms.

Sebi strengthens F&O guidelines: A six-step strategy launched by the Securities and Exchange Board of India (SEBI) aims to lower retail involvement in speculative index derivatives, which may cause trading volumes to drop by as much as 30–40%. The goal of these actions is to stop excessive speculation in the futures and options (F&O) market, where daily turnover often surpasses Rs 500 trillion and disadvantages retail investors.

Important modifications include raising the contract size from Rs 5 lakh to Rs 15 lakh, which necessitates the upfront collection of option premiums from purchasers and increases margin requirements.
The new regulations will also do away with the calendar spread treatment on expiration days, implement intraday monitoring of position limits, and restrict weekly expiries to one benchmark per exchange. These actions are meant to increase the entrance barrier for ordinary investors, who have been suffering significant losses, as the watchdog’s most recent investigation has shown.

Technical Sign: While a retreat was anticipated earlier in the week, according to Anand James, chief market analyst at Geojit Financial Services, the Nifty’s inability to close above 25,970 may portend a deeper correction, with probable falls aimed at the 25,600–24,600 level.

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