Bears tighten their hold on D-Street as Nifty and Sensex drop by 2%; here are 5 reasons for today’s market decline.

On October 3, Indian benchmark indices Sensex and Nifty 50 experienced a significant decline, marking their fourth consecutive session of losses with both settling over two percent lower. Investors hurried to offload their holdings as geopolitical tensions, bullish trends in China, and rising crude oil prices negatively impacted market sentiment.

At the close of trading, the Sensex fell by 1,769.2 points, or 2.1%, settling at 82,497.10, while the Nifty 50 dropped by 529.90 points, or 2.05%, to reach 25,267.00.

The downturn affected the broader markets and all sectoral indices as well. Every one of the 16 sectoral indices finished in the red, with Nifty Realty leading the losses, plummeting over 4%. Other laggards included Nifty Auto, Bank Nifty, and several others.

The fear gauge, India VIX, surged by more than 14% to 13.7, indicating increased market anxiety.

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1) Iran-Israel Conflict: Concerns about escalating geopolitical tensions in the Middle East have grown following Iran’s missile strikes against Israel. Israeli Prime Minister Benjamin Netanyahu has promised a strong retaliation, leaving global investors anxious about the possibility of a full-scale war.

2) Brent Crude: The rising geopolitical unrest in the Middle East has sparked worries that the conflict might disrupt oil supplies if energy facilities are targeted by Israel or its allies. Brent crude prices surged to nearly $75 a barrel, having risen almost three percent over the past two sessions. An Israeli attack on any oil facilities in Iran could trigger a significant spike in crude prices, which would be particularly detrimental to oil-importing countries like India.

3) F&O Clampdown: On October 1, the Securities and Exchange Board of India (SEBI) implemented new regulations that are expected to reduce trading volumes by 30-40%, raising concerns about liquidity in the derivatives market. These changes were made after an assessment of the speculative nature of index derivatives trading, especially on contract expiry days.

4) China Stimulus: A significant rebound in Chinese stocks is anticipated to prompt a shift in global investment portfolios, as investors look to benefit from the recent stimulus package. Concerns arose that foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) might shift their focus from Indian equities to Chinese stocks, especially given the high valuations in the domestic market compared to China. Top investment manager Adrian Mowat noted that many active fund managers who had heavily invested in India might start to reduce their positions to allocate funds to China.

5) Profit Booking: Investors may also be taking profits, particularly after an extended bull run in Indian equities. With market valuations in the mid-cap and small-cap sectors already high, any signs of a potential downturn—whether driven by domestic or global factors—can prompt investors to secure their gains.

Ruchit Jain, Lead – Research at 5Paisa.com, observed that market data indicated a possible correction was on the horizon. He pointed out the heavy long positions held by FIIs at the beginning of the October series and the overbought RSI setups, which typically lead to profit-taking.

“Nifty has closed around the 40-day exponential moving average (DEMA) support at 25,222, with RSI readings on shorter time frames in the oversold territory. This suggests a potential pullback in the index, but the short-term trend appears corrective, which may lead to selling pressure during pullbacks. If the index breaks this support level, further corrections could extend towards 25,085 and 24,800, which are key retracement levels. On any pullback, resistance is expected in the range of 25,600-25,700. Traders are advised to maintain a cautious approach,” he added.

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