On August 5, 2024, Indian stock markets witnessed a significant decline as both the Sensex and Nifty fell sharply in early trading hours. The Sensex plummeted by 2,686 points, or 3.3%, reaching an intraday low of 78,296, while the Nifty50 dropped below the 24,000-level to touch a low of 23,894, down 824 points or 3.3%. This sudden downturn was attributed to a combination of factors, both global and domestic, that contributed to the negative sentiment in the market.
One of the key reasons for the market fall was the weak US jobs data, which raised concerns about the health of the US economy. The US jobless claims data showed an increase in the number of citizens filing for unemployment benefits, reaching an 11-month high. This indicated softness in the labor market and fueled fears of a recession in the US. The Federal Reserve’s decision to keep interest rates unchanged further added to the uncertainty surrounding the economy.
Global markets also experienced a downturn, with Asian markets slumping and Japan’s Nikkei index plunging by 12%. This sharp decline in Asian markets set a negative tone for other markets around the world. US stock futures also took a hit, with Dow Jones, S&P 500, and Nasdaq futures all dropping significantly. The Nasdaq posted its third straight week of losses, while the S&P 500 and Dow Jones Industrial Average also ended the week in the red.
Geopolitical tensions in the Middle East, particularly between Israel and Iran, added to the market volatility. Israeli Prime Minister Benjamin Netanyahu’s remarks about being in a „multifront war against Iran’s axis of evil“ heightened concerns about a potential conflict in the region. The killing of Hamas leader Ismail Haniyeh in Tehran and the Israeli assassination of Hezbollah’s military chief in Beirut further escalated tensions between the two countries.
In addition to these external factors, domestic issues such as high valuations in the mid and small-cap segments also weighed on the market. The buy-on-dips strategy, which had been successful during the recent bull run, was challenged by the current market conditions. Investors were advised to exercise caution and wait for the market to stabilize before making any investment decisions.
Technical analysis of the Nifty 50 index indicated a breach below key support levels, signaling weakness in the market. The index failed to sustain a breakout and closed below the 20-day moving average, indicating a potential retracement of the recent rally. Support levels for the Nifty50 were expected between 24,400 and 24,300, with immediate hurdles at 24,300-24,350.
Overall, the sharp decline in Indian stock markets on August 5 was a result of a combination of global economic concerns, geopolitical tensions, and domestic market factors. Investors were advised to closely monitor developments and exercise caution in their investment decisions amidst the prevailing market volatility.