Sensex plunges 1,248 points, Nifty nosedives 1.64%; five factors behind market slump

Indian equities witnessed sharp selling pressure on Thursday as a sharp rise in global bond yields and renewed concerns over interest rates rattled investor sentiment. The US 10-year Treasury yield climbed to 5.11%, its highest level since 2007, prompting investors to reassess the outlook for global liquidity and borrowing costs.

The sell-off was compounded by an IRDAI consultation paper proposing tighter limits on insurance commissions, distribution expenses and loan-linked insurance practices, sending financial and insurance stocks lower.

The BSE Sensex settled 1,247.71 points, or 1.67%, lower at 73,580.54 and the Nifty 50 declined 383.70 points, or 1.64%, to 23,063.10. The total market capitalisation of all BSE-listed companies fell by ₹4.05 lakh crore to ₹480.95 lakh crore.

The sell-off was not restricted to a handful of sectors. All major NSE sectoral indices ended lower, while the Nifty Midcap 100 and Nifty Smallcap 100 fell 2.25% and 1.53%, respectively.

On the BSE Sensex, 29 of the 30 constituents ended lower, barring NTPC, which closed marginally higher. Financial stocks bore the brunt of the selling, with Bajaj Finance falling 5.47%, Axis Bank 4.67% and Bajaj Finserv 4.06%. Among other major laggards, Indigo declined 2.78%, Trent 2.75%, M&M 2.31% and Reliance Industries 2.25%.

Among individual stocks, NSE shares settled their first day of trade at ₹1,818, up 1.85% over the IPO price of ₹1,785, with a market capitalisation of about ₹4.5 lakh crore. Earlier in the day, the country’s largest exchange made a muted debut, listing at ₹1,800 on the BSE, a 0.84% premium to its issue price.

Here are five factors behind Thursday’s market fall:

1. Rising US bond yields

A sharp rise in US Treasury yields heightened concerns over global borrowing costs and tighter financial conditions. The US 10-year Treasury yield climbed to around 5.11%, while the 30-year yield touched its highest level since 2004, raising concerns about the trajectory of US interest rates.

“Markets came under pressure amid rising bond yields and a rebound in crude oil prices, reflecting heightened global macroeconomic risks,” said Vinod Nair, Head of Research at Geojit Investments.

The rise in US yields also widened the yield differential with Asian bond markets, weighing on emerging-market sentiment.

2. Crude oil rebound

A sharp rebound in crude oil prices added to concerns over inflation and India’s macroeconomic outlook. WTI crude rose above $94 a barrel, while Brent crude moved above $105.

Higher crude prices are a concern for India because of its dependence on oil imports and can put pressure on inflation, the current account and corporate margins.

3. Insurance stocks tumble on IRDAI proposal

Insurance stocks came under heavy selling pressure after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to expense-of-management limits and commission structures.

The proposed overhaul of insurance distribution economics raised concerns among investors and brokerages about the potential impact on the profitability of insurers and the economics of distribution.

Max Financial Services fell as much as 10%, while HDFC Life Insurance declined 5.19% and ICICI Prudential Life Insurance dropped 2.76%. The New India Assurance fell 5.05%, while Niva Bupa Health Insurance declined 3.08%.

4. Financial stocks drag markets lower

Financial stocks emerged as the biggest drag on the benchmarks, with the Nifty Financial Services 25/50 index falling 2.16%.

Banking and financial stocks faced selling pressure amid concerns over regulatory changes and their potential impact on profitability.

“The insurance and banking sectors remained weak following concerns regarding regulatory reviews of commission structures and their implications for profitability,” Nair said.

Among Sensex constituents, Bajaj Finance fell 5.47%, Axis Bank declined 4.67% and Bajaj Finserv dropped 4.06%. Kotak Mahindra Bank, State Bank of India and HDFC Bank also ended lower.

5. Deterioration in risk appetite

The sell-off was broad-based, extending well beyond the financial and insurance sectors. The breadth of the decline reflected weakening risk appetite as investors contended with rising global bond yields, elevated crude oil prices and fresh regulatory concerns in the domestic financial sector.

“Investor sentiment turned increasingly risk averse as concerns over the interest rate trajectory intensified, driven by lingering uncertainties around inflation and economic growth,” said Vinod Nair, Head of Research at Geojit Investments.

The technical picture also weakened. The Nifty slipped below 23,250 after opening sharply lower, while Shrikant Chouhan, Head of Equity Research at Kotak Securities, said the benchmark remained weak below 23,150.

“As long as it is trading below 23,150/73,800, weak sentiment is likely to continue,” Chouhan said. He identified 23,000 on the Nifty and 73,500 on the Sensex as immediate support levels.