Bloodshed Continues On D-Street: Rs 40 Lakh Crore Eroded On June 4; India VIX Jumps 40%; Relief Soon?

The Indian stock market witnessed a sharp selloff on Tuesday, June 4, 2024, wiping out over Rs 40 lakh crore of investors' wealth in intraday trade. This sudden downturn saw the market capitalisation of BSE-listed companies plunge from nearly Rs 426 lakh crore at the previous session's close to approximately Rs 386 lakh crore by 2:35 pm. The turmoil was triggered by early election trends indicating a tighter race than exit polls had predicted, causing widespread investor panic.

The benchmarks Sensex and Nifty 50 both nosedived over 8%, with the BSE Midcap index plummeting 10% and the BSE Smallcap suffering an over 8% loss intraday. The significant downturn was a stark contrast to the previous session's robust gains, which were fueled by expectations of a decisive victory for the ruling National Democratic Alliance (NDA). Early trends, however, suggested a much closer contest, with the NDA at 294 seats and the INDIA alliance at 223 seats.

"On June 4, the Lok Sabha election results led to significant market reactions, reflecting the intense political competition. The market was initially buoyed by expectations of a strong performance from the NDA," commented Mandar Bhojane, Equity Research Analyst at Choice Broking. The market had largely priced in a significant majority for the NDA, as exit polls had suggested. However, the unexpected tight race caused a swift and severe reaction from investors.

At 2:35 pm, the Nifty 50 was down 5.73% at 21,931, while the Sensex had fallen 5.57% to 72,209. The mcap of BSE-listed firms stood at nearly Rs 388 lakh crore at that point. The Nifty fell over 1,330 points from its all-time high, with Bank Nifty experiencing an even steeper decline of 6%. All sectors witnessed a downturn, with the most significant falls seen in PSU Banks, Nifty Energy, and Nifty Metals. Notably, stocks of PFC, REC, and all Adani companies hit the lower circuit with a 20% decline.

This sharp selloff evoked memories of previous significant market declines. For instance, the Nifty dropped 4.78% on February 24, 2022, after the outbreak of the Russia-Ukraine war, and a 13% fall on March 23, 2020, following the announcement of the Janata curfew due to COVID-19.

The banking sector bore the brunt of the selloff, with the Nifty Bank index dropping more than 9% as of 12:35 pm. All 12 stocks on the Nifty Bank index traded with losses, reflecting the broad impact of political uncertainty on the sector. Shares of State Bank of India (SBI), India's largest PSU bank, were among the top losers, declining by 15%. Bank of Baroda also tumbled about 15%, while other major banks, including Punjab National Bank, Axis Bank, ICICI Bank, HDFC Bank, and Kotak Mahindra Bank, reported losses of up to 7%.

The Nifty Bank index had recently crossed the 51,000 mark for the first time on June 3, buoyed by exit polls suggesting Prime Minister Narendra Modi's return for a third term. This milestone was reached after a remarkable 10,000-point journey from 40,000, a level first attained in October 2021. The index surged by as much as 4.1% on June 3, driven by strong performances from major banks, only to face a sharp reversal the next day.

The broader market's reaction was one of pervasive uncertainty and heightened volatility. The India VIX, a measure of market volatility, surged by over 40%, indicating increased market fluctuations in response to the election results. This volatility spike suggests that traders and investors should brace for continued turbulence. "The Nifty exhibited a volatile range between 21,800 and 23,350, creating a significant 1,500+ point spread. The index formed a substantial bearish candle, with key support levels identified at 22,000 and 22,800," Bhojane added.

The FMCG sector, however, demonstrated relative resilience amidst the broader market decline. Stocks such as Hindustan Unilever, Dabur, and Colgate-Palmolive showed strength, providing some relief to investors. Despite the sharp 1,200 points fall, Nifty showed signs of stabilization, with the potential to regain strength if it breaks above 22,800 and 23,000, potentially surging to new all-time highs of 23,500 and 23,700.

Tuesday's market mayhem reflects the impact that political developments can have on investor sentiment and market stability. As the election results continue to unfold, the markets are likely to remain volatile, reflecting the broader economic and political uncertainties. Investors and market participants will closely watch the final outcome of the Lok Sabha elections and its implications for the Indian economy.