Stock market slumps nearly 2% today; Factors that spooked market—What should investors do now?

The domestic equity market fell nearly 2% in the early trade on Friday as benchmarks corrected around 4% this week so far. At 1.30 pm, headline indices Nifty50 and the Sensex were trading with nearly one and half per cent cuts. The broader Nifty 50 continues to trade around 16,400 after slipping to the day's low of 16,340.90. Similarly, the S&P BSE Sensex dropped more than 700 points as the 30-share index traded around 54,900.  

In the broader market, Nifty midcap and smallcap declined between 2-3%, pushing Idia VIX to above 21-mark.  

Sectorally, all Nifty indices sat in the red with IT, Metal, Realty and Consumer Durables declining the most.  

Here are the factors driving sell-off in the Indian market

Inflation and Central Bank's action

As per experts, rising inflation and the challenges before the central bank worldwide are what are causing weakness in the market. Recently, the Bank of England raised interest rates by 25 basis points to 1%, the highest in 13 years. Earlier, US Fed Reserves and India's Reserve Bank of India has also increased benchmark lending rates by 50 and 40 bps respectively to contain soaring inflation.  

"Stock markets throughout the globe have become extremely fragile due to the entrenched inflation and the possibility of harsh measures by the central banks to tame the same," said Sunil Nyati, Managing Director, Swastika Investmart Ltd. 

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services also said that the single important factor roiling global equity markets is the reemergence of inflation as a major threat and market's skepticism over the central banks' ability to contain inflation without triggering a sharp economic slowdown. 

Weak global cues and geopolitical tension 

Besides, weak global cues and geopolitical tenson continue to impact the Indian markets. In the biggest intraday fall since 2020, Wall Street on Thursday crashed erasing the prior day`s rally as Dow Jones tanked over 1000 points, Nasdaq dropped nearly 650 points and S&P 500 settled with a cut of more than 150 points on Thursday. 

Among other factors, geopolitical tensions, stagflation risk, and global economic growth slowdown have spooked Indian Investors and this led to a sharp fall in Sensex and Nifty, said Nyati.  

FIIs relentless selling 

Foreign Institutional Investors (FIIs) on Thursday sold equity worth Rs 2074.74 crore on Thursday and have remained net sellers so far in May. In this month, FIIs sold to the tune of Rs 7,216.38 crore in the domestic market, continuing to exert pressure from one end.  

"Nasdaq is at one-year lows and S&P 500 appears to be moving in that direction. India cannot remain uncoupled from this trend particularly when FPIs are on a selling spree and has more fire power to remain bearish," said Vijaykumar.

What should investors do?  

Swastika Investmart MD said sudden repo rate and CRR hike by the RBI has perplexed investors and this marks the end of pandemic led stimulus, we believe that investors would have to work very hard to earn good returns as the days of easy money are ending.  

"We suggest investors stay with quality names and invest in stocks that have a good growth outlook and are valued reasonably and take advantage of the current correction," he said.  

Technically, 16000-15500 is an important demand zone, where we can expect some buying interest, however, bulls will need to do the heavy lifting to cross the 17000-17250 supply zone, added the expert.

Geojit Financial Services Chief Investment Strategist suggested Investors to remain calm in these turbulent times without taking aggressive positions. "Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy," he said.