On Monday, the Indian stock market saw a sharp decline. Rising tensions between Iran and the US lifted oil prices and bond yields, making investors jittery and the Sensex and Nifty fell 1.6%. Due to this decline, the Sensex appeared at the level of 72 thousand points for the first time since March 30. This means that the stock market has seen its biggest decline in almost 6 months.

If we look at the stock market data, the Sensex fell 1,124 points to close below 72,800, while the Nifty 50 fell over 360 points to close near 22,800. Due to this sale, the total market capitalization of the companies listed on BSE is around Rs. 8 lakh crore, due to which it fell to Rs. 474 lakh crore had become.

Out of the 30 companies in the Sensex, 29 companies closed lower. The biggest decliners in the benchmark index were shares of L&T and Power Grid, which fell around 3 percent. Shares of Adani Port, HDFC Bank, Hindustan Unilever, Reliance Industries and SBI fell over 2%. Bucking the trend, Infosys was the only stock to close with gains.

The market saw an overall sell-off, with the Nifty Smallcap 100 and Nifty Midcap 100 indices down around 2%. India Vicks, an index measuring market volatility, rose nearly 12 percent to close at 14.

All sectoral indices closed with losses, with Nifty PSU Bank down over 3% and Nifty Realty over 2%. Nifty Auto, Nifty Financial Services, Nifty FMCG, Nifty Metal, Nifty Private Bank and Nifty Realty saw declines of 1-2%. Overall market trend was quite negative. On the NSE, 2,716 shares declined against gains in 869 shares, while 91 shares were unchanged. Let us also tell you what are the main reasons for the fall in the stock market…

Main causes of decline in stock market

1. Tensions increased between Iran and the US US President Donald Trump has rejected Iran’s proposal for a seven-day ceasefire and the reopening of the Strait of Hormuz. Speaking to reporters on Saturday, Trump insisted that he did not approve of the deal. They want an agreement that will immediately open the Strait of Hormuz, because they are failing miserably. At the same time, Iranian President Masoud Pezheshkian said that Iran would remain firm and not back down against the US and Israel. He said that we are strong, we are in the service of our people, we will stand till our last breath and we promise that we will be honest servants of people as long as we have life in our body. You have shamed us, I do not deserve your presence, I am your servant. Investors may have been spooked by the Iranians’ persistence despite Trump’s threat of total destruction and rejection of the peace deal. They will keep a close eye on developments in the oil-rich Middle East.
2. Increase in oil prices: Oil prices rose 2 percent to near $107 a barrel following recent developments in the Middle East, as the market weighed the possibility of further oil supply disruptions. Brent crude futures were trading around $107 per barrel, while WTI crude futures were trading around $94 per barrel.
3. Increase in bond yields: Bond yields hit new highs in several years, putting more pressure on equity markets. The yield on benchmark US 10-year Treasury notes rose further to above 5.2 percent, the highest since 2004. The yield on 30-year US bonds rose above 5.5 percent, while the yield on the two-year note – which moves up with expectations of the Fed raising interest rates – is above 49 percent. Rising bond yields generally make debt markets more attractive to investors, putting pressure on riskier equity markets. Bond yields and bond prices move inversely to each other, so rising yields mean bonds are being sold heavily.
4. 96 across the Rs The rupee fell 28 paise to close at 96.03 against the US dollar in early trade. Forex traders had feared that the Indian currency would breach the key psychological level of 96 against the US dollar, and it did by the end of the session as it faced headwinds from higher oil prices, rising US Treasury yields and a stronger dollar. Jatin Trivedi, VP Commodity and Currency Research Analyst at LKP Securities, said the rupee could not maintain its gains due to fluctuations in crude oil and gold and a surge in the dollar. Going forward, currency movements are likely to range between global commodities and dollar volatility. The range of the rupee can be seen between 95.50-96.50.
5. Sale by FII: According to NSE’s preliminary data, foreign investors continued to sell in Indian equities on Friday with a total of Rs. 3,694 crore worth of shares were sold. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said that after positive inflows in July and August, the FPI flow turned negative at the beginning of this month itself. He said that this trend is continuing and so far this month a total of Rs. 25,682 crore has come out of equities through exchanges.
6. Weak signals from global markets: Today, Dalal Street is running like most markets in Asia, trading lower amid rising oil prices. South Korea’s Kospi fell about 3 percent, while China’s Shanghai Composite fell about 2 percent. Japan’s Nikkei was marginally lower.

What’s next for Dalal Street?

Vinod Nair, head of research at Geojit Investments, said that ‘bears’ (bearish expectations) continued to dominate as the market broke key psychological support levels. This reflects growing investor caution amid deteriorating global macro conditions.

He said the rejection of the ceasefire proposal by the US has raised concerns that tensions in West Asia could continue longer than expected. This reduces the chances of a quick diplomatic solution and increases the risk of prolonged supply-side disruptions and rising commodity prices.

Nair said the India-US yield spread is narrowing due to a rise in US bond yields, which could lead to a withdrawal of foreign funds and a cautious market mood. Additionally, investors sold across sectors as they reassessed risk amid rising expectations of further interest rate hikes by the Fed.

The analyst further said that the market may be cautious ahead of RBI’s next policy decision. Also, global liquidity conditions, fluctuations in bond yields, oil prices and policy related cues will determine market sentiment in the near future.