The equity benchmarks fell up to 1% intra-day as investors took money off the table amid fears of a major conflict between India and Pakistan. However, the indices recouped half of their losses to close down marginally over 0.5%. The market volatility, as measured by the VIX, surged 10.21% to 21.01 ― the sharpest rise in a month.
After opening on a positive note, the Sensex traded nearly flat during the first half of the session, but later succumbed to selling pressure. It slumped over 940 points (1.16%) from the day’s high to hit an intraday low of 79,987.61. After recovering some losses, it closed at 80,334.81, down 411.97 points, or 0.51%. The Nifty closed lower by 140.60 points, or 0.58%, at 24273.80.
“There is a lot of caution in the markets as investors are worried that the ongoing tensions could escalate into a major conflict between the two nuclear-powered nations. This fear has triggered profit taking across almost all the sectors, barring select IT counters,” said Prashanth Tapse, senior VP (research), Mehta Equities. He added that with the local currency depreciating sharply amid the ongoing standoff, foreign investors might pull out of domestic equities to move funds into overseas safe-haven assets.
The rupee on Thursday weakened by 89 paise, or 1.04%, against the US dollar ― its steepest single-day fall since February 6, 2023.
The market sentiment was further dampened by the outcome of the latest FOMC meeting, which kept interest rates unchanged, but issued warnings about rising inflation and unemployment risks amid global trade uncertainties.
“Ongoing uncertainty continues to make traders cautious, potentially clouding the prevailing trend amid lingering geopolitical tensions. Until the volatility, as reflected by the elevated India VIX, subsides, we recommend maintaining a hedged strategy with a strong focus on stock selection,” said Ajit Mishra, SVP – research, at Religare Broking.
The broader indices underperformed the benchmarks. The BSE Midcap declined 1.90% while the BSE Smallcap fell 1.05%. The overall market breadth was negative, with 2,548 stocks declining on the BSE, against 1,349 gainers. Investors’ wealth eroded by ₹5 lakh crore, bringing the total market capitalisation to ₹418.5 lakh crore.
Barring IT, all sectoral indices on the BSE ended in the red. Realty, oil & gas, auto, power, and utilities were major laggards, falling up to 2.6%.