Black Friday! Why did the Sensex Nosedived By 872 Points, Nifty Dipped By 287 Points On August 2? - EXPLAINED!

India's volatility index (VIX) shot up nearly 10% on Friday, as bears run over on the stock market with Sensex and Nifty free falling 1.4% from their all-time highs. It is safe to say, that the Friday trading session aka August 2nd, turned darker and gloomier for the Indian stock market. The reason? A mix of global and domestic factors has played a key role in the latest sharp correction in Indian equities.

Black Friday Of Sensex, Nifty!

On August 2nd, Sensex nosedived by as much as 871.85 points, even erased its 81,000 mark to touch an intraday low of 80,995.70. The Nifty 50 also took the massive beating of bears, toppling by 287.2 points to touch an intraday low of 24,723.70.

Overall, Sensex and Nifty have corrected sharply by 1.4% from their all-time highs.

Mild losses have been recovered as the market enters into the second half of the session. Currently, both benchmarks are trading down by 1% each with Sensex struggling to hold 81,100 levels, and Nifty trying to breathe near the 24,800 mark.

The bearish trend in the Indian stock market comes after both Sensex and Nifty touched new lifetime highs of 82,129.49 and 25,078.30 respectively at the start of the current month.

In fact, on August 1, Nifty crossed 25,000 for the first time, chasing a 1,000-point rally in just 24 trading sessions, which is the third fastest in the benchmark's history.

Explaining the fresh record rally of August 1, Ajay Menon, MD & CEO, Broking & Distribution, Motilal Oswal Financial Services said that Nifty crossed the 25k levels for the first time, making a silver jubilee on the charts. The index took 24 trading sessions to complete a 1000-point rally, the third-fastest in the index's history. Nifty has gained around 11% in the last 3 months. This rally is driven by healthy GDP growth, control inflation, strong domestic liquidity both from Retail as well as Institutional participants, and a progressive monsoon. Global cues have been supportive after the US Fed indicated a possible rate cut in September.

Then why have Sensex and Nifty turned away from bulls on August 2? Firstly, it is the weak global cues after investors panicked over disappointing US economic data with fear of the return in an economic slowdown in the world's largest economy. Secondly, the Indian market is overvalued, and has been on an upward trajectory, thereby, a consolidation was warranted!

Why Market Is Down On August 2?

On the latest performance, Vishnu Kant Upadhyay, AVP, of Research and Advisory at Master Capital Services said, the Indian benchmark indices opened significantly lower today, driven by weak global sentiments. Both the Nifty50 and Sensex declined by nearly 1.40% from their all-time highs, trading at 24,800 and 81,220, respectively. This downturn follows substantial losses in major U.S. and Asian equities during yesterday's trading session, spurred by disappointing U.S. economic data that heightened concerns about an economic slowdown in the world's largest economy.

Kant additionally added that domestic equities have been on an extended upward trajectory, which has pushed stocks into overvalued territory, leading to a sharp correction in prices.

The latest central bank decisions globally have also played a key role in fuelling bearish sentiment.

Along similar lines, Pravesh Gour, Senior Technical Analyst at Swastika Investmart said that negative global sentiment played a crucial role. A sell-off on Wall Street, coupled with concerns over a potential US recession and weak commentary from the top IT companies in the US, led to a cautious approach among investors. Negative economic data from major economies like the US and China also impacted investor sentiment. Central bank actions also played a pivotal role.

Gour added that the central bank of Japan raising interest rates to combat inflation contributed to market volatility. Such moves can lead to shifts in global capital flows and increased nervousness among investors.

On the domestic front, Swastika analyst said, the India VIX, often referred to as the fear index, rose, indicating higher market volatility. This spike in the fear index reflects increased nervousness and uncertainty among investors.

However, the latest correction is not expected to accelerate further! Kant said, "We do not anticipate a further acceleration in this decline. The major domestic indices remain well above their key moving averages, maintaining a bullish bias for the short to medium-term. We believe as long as the market is trading above the 21-day EMA, every decline will present investors with an opportunity to accumulate shares at lower levels."

Giving a technical outlook on the 50-scrip benchmark, Gour said, "Nifty has shown some bounce back from the important level of 24750. Now 20-DMA of 24600 will be the key support level. 25000 will act as a key barrier after a gap-down opening." On Bank Nifty, the analyst added, Banknifty is underperforming and trading below the 20-DMA of 52000. 51000 and 50450 will be immediate support levels. 49500 will be the next key support level.