The Indian stock market witnessed a significant downturn on Thursday, with the Nifty 50 index plunging below the psychological 24,000 support level and reaching an intraday low of 23,873, recording a drop of over 1%. Similarly, the BSE Sensex opened higher but soon succumbed to selling pressure, touching an intraday low of 78,918, reflecting a loss of around 1.5%. Meanwhile, the Nifty Bank index lost more than 450 points, or 0.85%, adding to the overall market sell-off.

Experts believe that the market's slide is primarily driven by a combination of domestic and global factors, including foreign institutional investors (FIIs) pulling out, a strong US dollar, and geopolitical tensions. Despite the sharp drop, analysts suggest that the correction could be seen as a mere profit-booking phase, with the market poised for a rebound if the Nifty 50 index manages to close above the crucial 24,050 mark.

Key Reasons for the Stock Market Fall:

1. Stock Market Holiday in the US
The Indian stock market surged the previous day due to a positive global sentiment following gains in the US markets. However, the US stock market was closed on Thursday, leading to a lack of global cues. This absence of fresh international triggers contributed to profit booking, particularly after the Nifty opened on a positive note.

Mahesh M Ojha, AVP — Research at Hensex Securities, noted, "The lack of global cues, especially due to the stock market holiday in the US, likely triggered the sell-off despite a gap-up opening."

2. FIIs’ Selling Pressure
Foreign Institutional Investors (FIIs) have been net sellers in November, which has added significant downward pressure on the Indian market. Alongside this, Domestic Institutional Investors (DIIs) have been relatively cautious, choosing to hold off on major purchases due to uncertainty over upcoming political and economic developments. This combination has further impacted market sentiment.

3. Anticipation Around Union Budget 2024
With India’s Union Budget 2024 just a couple of months away, DIIs are waiting for more clarity from the government, especially following their victory in the Maharashtra Assembly Elections. As the budget is expected to influence key policy decisions, DIIs have adopted a wait-and-watch approach, contributing to low buying interest in the market.

4. Strong US Dollar Driving Capital Away from Equities
The US dollar has been gaining strength in recent weeks, leading to a shift in investor focus. As the dollar strengthens, investors are moving funds from equities and gold into safer assets like bonds and foreign exchange markets. This has intensified FIIs' selling pressure in India, further driving down stock prices.

5. Geopolitical Tensions Discounted
The market had previously seen a brief recovery following news of a ceasefire in the Israel-Hezbollah conflict. However, analysts believe that this geopolitical trigger has now been largely priced in. The focus has shifted back to the ongoing Russia-Ukraine war, which continues to add uncertainty to global markets and weighs on investor sentiment.

Market Outlook

Looking ahead, the Indian stock market faces a crucial test. According to Mahesh M Ojha, if the Nifty 50 index manages to close above the crucial 24,050 mark, there is potential for a rebound. However, if the index fails to hold this support level, it may further dip toward the 23,800 level.

In the short term, traders are advised to focus on sectors like railways, oil, energy, and infrastructure, which could perform better in this weak market environment.

Conclusion

While the Indian stock market is undergoing a sharp correction, driven by a mix of domestic and international factors, experts suggest that the current downturn may be a phase of profit-booking. Investors should monitor the Nifty 50's performance closely, as a recovery could be on the horizon if the 24,050 mark holds. However, with the global economic situation and domestic uncertainties, caution is advised for traders and long-term investors alike.

Disclaimer: The views and recommendations expressed in this article are those of individual analysts or broking companies and not of Mint. Investors should seek professional advice before making any investment decisions.