The Indian stock market began October with a sharp downturn, as geopolitical tensions and global uncertainty took a toll on investor confidence. The benchmark indices, Sensex and Nifty 50, saw significant declines in the first two trading sessions, dropping approximately 1.5% as both domestic and global factors pushed markets into the red.
The main factor dragging down the markets was the escalation of tensions in the Middle East, particularly the intensifying conflict between Israel and Iran. These global cues weighed heavily on investor sentiment, exacerbating concerns about the potential ripple effects on global oil supplies and the broader economy. As a result, the Indian stock market started the month on a subdued note, with losses across various sectors.
Market Performance and Global Concerns
On Thursday, the Sensex and Nifty 50 both plummeted, reflecting the broader market’s pessimistic outlook. The Sensex, India’s 30-share index, dropped by 1.5%, while the Nifty 50, comprising the top 50 companies listed on the NSE, experienced similar losses. This decline was attributed primarily to a weak global market outlook fueled by escalating geopolitical tensions in the Middle East.
The ongoing Israel-Iran conflict, which saw Iran fire missiles in retaliation for the killing of Hezbollah’s Hassan Nasrallah, has raised fears of a broader regional conflict.
Investors fear that if the situation escalates, global oil supplies could be disrupted, leading to higher crude oil prices—an outcome that would have significant ramifications for countries like India, which rely heavily on oil imports.
The situation remains fluid, with Israel vowing to retaliate against Iran’s attacks and tensions building further in the region. Market participants are keeping a close eye on developments in the Middle East as any further escalation could have a profound impact on global trade and energy supplies.
Impact on Sectors and Major Indices
The stock market’s dip wasn’t limited to a single sector. All major indices, including sectoral indices like Nifty Auto, Nifty FMCG, and Nifty Private Bank, were trading lower during the first two trading days of October.
The Nifty Metal index was one of the few sectors that managed to hold its ground amid the sell-off. Meanwhile, broader market indices like Nifty Midcap 100 and Nifty Smallcap 100 also saw declines, reflecting the overall bearish sentiment.
The broader market losses were driven by a combination of external and internal factors. Global cues, primarily from Asian and US markets, were mixed as well, as investors across the globe reacted to the uncertainty in the Middle East and the potential impact on crude oil supplies. Additionally, regulatory changes by the SEBI added to the market’s woes.
SEBI’s New Derivatives Trading Rules
Adding to the market’s decline was a new set of rules from SEBI aimed at tightening the norms for equity derivatives trading. These regulations included stricter requirements for minimum trading amounts and leverage, which could limit the ability of traders to participate in certain high-risk, high-reward strategies.
Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, commented on the new guidelines, stating that while the changes are designed to strengthen market resilience, they could also pose challenges for traders and investors. The restrictions could stifle innovation in trading strategies, particularly in an environment where flexibility is key to driving liquidity and market participation.
This has led to concerns that the Indian market might lose some of its competitiveness on the global derivatives stage, with fewer participants able to engage in complex trades that require higher levels of leverage. As a result, some investors are viewing these changes as a potential dampener on market dynamism, which could lead to further short-term volatility.
Crude Oil Prices and Foreign Institutional Selling
One of the key factors driving market sentiment in recent days has been the rise in crude oil prices. Brent crude futures rose by 1.24% to $74.82 a barrel, while US West Texas Intermediate (WTI) crude futures increased by 1.37% to $71.06 a barrel. The rising prices have raised concerns for oil-importing nations like India, where a substantial portion of the import bill is tied to crude oil.
Higher oil prices are a negative development for India’s economy, as they tend to increase inflationary pressures and widen the trade deficit. Investors are concerned that continued geopolitical instability in the Middle East could drive oil prices even higher, potentially pushing the Indian economy into a more challenging period.
Adding to the downward pressure was the continued selling by foreign institutional investors (FIIs). FIIs sold equities worth ₹5,579.35 crore on October 1, marking the third consecutive day of net selling.
Domestic institutional investors (DIIs) have been net buyers, purchasing equities worth ₹4,609.55 crore on the same day. However, the outflow of foreign capital has raised concerns about the future direction of the market, especially as global markets become more attractive for investors seeking safer bets.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that FIIs may continue to sell Indian stocks, particularly as Chinese stocks have become bullish and present a more attractive option due to their lower valuations relative to India. The flow of money into the Hong Kong market, which is perceived as cheaper, has further intensified the sell-off in Indian equities.
October Stock Picks: Defensive Plays Amid Volatility
In this environment of heightened volatility, brokerage firms are focusing on more defensive stock picks that can weather the storm. DRChoksey FinServ has recommended a list of six stocks that it believes have strong upside potential this month, despite the challenging market conditions.
The stocks include ACC, Glenmark Pharmaceuticals, Godrej Consumer Products, Rossari Biotech, State Bank of India (SBI), and Tata Motors. These companies are seen as having strong fundamentals and growth potential over the medium to long term, with potential returns ranging from 20% to 36%, according to DRChoksey’s analysis.
For instance, ACC, one of the top picks, is expected to report robust revenue and profit growth over the next few years, driven by strong demand in the construction sector. Similarly, Glenmark Pharmaceuticals is projected to see revenue growth of 10% and profit growth of 42.5% CAGR over the next three years, making it an attractive buy in the current market.
As market volatility continues, investors are advised to be cautious and focus on stocks with strong fundamentals and growth potential, while keeping an eye on external factors like global tensions and regulatory changes.
