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Geopolitical Tensions and Corporate Disappointments Fuel Widespread Stock Sell-Off

The BSE benchmark Sensex experienced a sharp decline of nearly 900 points during its sixth consecutive day of descent, closing below 64,000, while the broader Nifty also dipped below 19,000. This decline led to a significant reduction in investor wealth, amounting to over Rs 3.17 lakh crore on the BSE.

Market observers noted that the fall was not unexpected, as a correction was overdue in midcap and smallcap stocks due to inflated valuations in these segments. However, the situation may not have bottomed out yet, as global concerns loom large. Investors are apprehensive that the Israel-Palestine conflict escalation could drive energy prices higher and impede growth. Consequently, institutional investors are favoring safer investments, such as the US dollar, over riskier options like equities. The rise in US treasury yields is another challenging factor.

Foreign Portfolio Investors (FPIs) were net sellers of stocks, amounting to Rs 4,054 crore on Thursday. In addition, corporate earnings have failed to meet expectations, leading to downgrades and doubts about elevated valuations.

Mukesh Kochar, National Head of Wealth at AUM Capital, noted, ‘The market was looking for a reason to correct, given its discomfort with valuations. The primary causes for the fall were worsening geopolitical tensions, rising US yields, and profit booking ahead of upcoming elections.’

Kochar added that the markets may appear reasonably valued with a further correction of 300-400 points and stabilization of geopolitical risks.

The Sensex opened below the 64,000 mark, reaching 63,774.16, and saw a significant drop of 956.08 points (1.49%) to a daily low of 63,092.98. The day concluded with a loss of 900.91 points (1.41%), settling at 63,148.15. On the NSE, the broader Nifty fell by 264.90 points (1.39%), closing at 18,857.25.

Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, attributed the correction to geopolitical tensions and rising US bond yields. He advised investors not to panic and recommended selling overvalued stocks while accumulating quality businesses at these levels.

Meanwhile, the European Central Bank decided to leave interest rates unchanged, marking its first meeting without a rate change in over a year. The Israel-Hamas conflict further dampened Europe’s economic prospects.

The Reserve Bank of India is set to meet senior officials from select banks on November 2 and November 3 to discuss the prevailing liquidity conditions in the banking system, as reported by treasury officials.

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