What caused Thursday’s stock market rout, and is it time to buy or sell?

The BSE Sensex posted its biggest one-day rout in over six months on Thursday, nosediving 1,159 points as investors unwound long positions on expiry of monthly derivative contracts amid a string of lacklustre earnings and cautious sentiment overseas. 

Banking, FMCG and energy shares came under heavy selling pressure, while midcap and smallcap counters also suffered hefty losses. 

Sliding for the second straight session, the 30-share BSE benchmark tanked 1,158.63 points, or 1.89 per cent, to close at 59,984.70. This was its biggest drop since April 12 this year, when it had plunged 1,708 points. 

Similarly, the broader NSE Nifty plummeted 353.70 points, or 1.94 per cent, to finish at 17,857.25.

The Reserve Bank of India said late Wednesday that it will drain cash from the banking system for longer periods, spurring concern the move may temper gains in an equity market driven by record-low policy rates and a retail-investing boom. Morgan Stanley downgraded Indian equities to equal-weight from overweight due to expensive valuations, and said it expects the market to consolidate ahead of potential “short-term headwinds”. The downgrade followed similar moves by Nomura and UBS.

Also read: Analysts on Sensex@60K: ‘The end will come, but we don’t know when’

Heavy selling by FIIs was a key reason for the correction, analysts said. FIIs had sold over ₹10,000 crore in Indian equities in past five sessions.

ITC was the top loser in the Sensex pack, tumbling 5.54 per cent, a day after reporting a lower-than-estimated 10.09 per cent increase in consolidated net profit for the second quarter. 

ICICI Bank, Kotak Bank, Axis Bank, Titan, SBI and HDFC Bank were among the other major laggards, shedding as much as 4.39 per cent. 

Only six Sensex counters managed to close in the green. IndusInd Bank topped the gainers chart with a jump of 2.94 per cent after clocking a 73 per cent rise in Q2 net profit. L&T, UltraTech Cement, Asian Paints, Maruti and Bajaj Finance were the other winners. 

Investors lost ₹4.82 lakh crore in Thursday’s session, with the market capitalisation of all BSE-listed companies standing at ₹2,60,48,949.80 crore.

“In our view, in addition to weak global cues, unwinding of long positions especially in financials on F&O expiry, which had seen sharp rally in recent period were the prime reasons for sharp market correction today,” said Binod Modi, Head-Strategy at Reliance Securities. 

Vinod Nair, Head of Research at Geojit Financial Services, said: “Bears continued to dominate domestic indices tracking cues from weak Asian and European markets ahead of a policy update from the European Central Bank.” 

“Globally investors are on the edge awaiting the US GDP data releasing later in the day along with the outcome of the Fed meeting scheduled for next week,” he added. 

Meanwhile, international oil benchmark Brent crude slipped 1.11 per cent to $82.94 per barrel. The rupee gained 11 paise to close at 74.92 against the US dollar as easing crude oil prices lent some support to the local currency. 

Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth ₹1,913.36 crore, as per exchange data.