Due to both domestic and international factors, the equity markets suffered a sharp sell-off during the trading session on Wednesday. As the session went on, the flagship indices gave up their early gains and selling pressure increased. During the session, all of the industries and sectors were damaged.

The BSE Sensex, which is a 30-share pack, fluctuated between 1,500 points. But at 72,761.89, the BSE's barometer ultimately finished at 906.07 points, or 1.23% lower. The Nifty50 index of the NSE fell more than 540 points from its peak and finished the day at 21,981.75, down 353.95 points, or 1.58%, on the day. India's VIX fear index increased by almost 6% to 14.43.

Both the BSE midcap and smallcap indices saw declines of up to 5%. The whole market value of all BSE-listed companies plummeted to Rs 371.69 lakh crore, down from Rs 385.64 lakh crore in the previous trading session, costing investors a total of Rs 13.57 lakh crore.

With frantic selling towards the finish pushing the benchmark Nifty below 22,000, the markets reversed early gains and into the negative territory, according to Prashanth Tapse, Senior VP (Research), Mehta Equities, who advised investors to hold off on placing any significant long-term wagers.

"There have been concerns over the rising valuations of mid & small-rung stocks for a while, and with the regulator too highlighting these concerns, traders preferred to trim their exposure which resulted in a massive correction across the board," he said.

The following are the main elements that damaged market mood on Wednesday:

US Inflation Statistics

Bond rates rose as a result of the US consumer price index (CPI) rising strongly in February, exceeding estimates and pointing to some stickiness in inflation. Still, a few analysts believe that the Federal Reserve will lower interest rates in June. Still, core numbers exceeded projections as well.

According to Vinod Nair, Head of Research at Geojit Financial Services, the Fed's capacity to carry out impending rate reduction has been called into question by the ongoing rate of inflation in the US. "However, the easing trend in global commodity prices may prompt central banks to consider rate cuts in the latter half of 2024, which could be positive for equity," he said.

Selling Heavyweight Index Stocks

The market sentiment was damaged by sell-offs in heavyweights in the index, such as Reliance Industries, Larsen & Toubro, and a few Tata Group stocks. Of the 906 points that were slashed from the BSE Sensex, only Reliance Industries contributed roughly 260 points. For the day, NTPC contributed about 100 points.

Vulnerability in the Wider Markets

Second rung counters kept bleeding as wider markets maintained their downturn for an additional trading session. On Wednesday, the BSE smallcap index fell 5.11 percent for the day, while the BSE midcap index fell 4.2%. 1,086 equities in all closed their corresponding lower circuits during the day.

According to Pravesh Gour, Senior Technical Analyst at Swastika Investmart, there has been worry over the inflated values in the small- and mid-cap spaces, which are being generated by the excessive optimism of individual investors. But it took a strong message from regulator Sebi to effect a correction. Mutual fund activity and ongoing sales indicate more hardship to come."

Prices for Crude Oil Increase

Wednesday saw a rise in crude oil prices due to indications of robust global demand, particularly from the US, which is the world's largest consumer. Despite relatively sticky US inflation, optimism that the Federal Reserve would soon begin cutting rates also helped to boost confidence. The United States' crude oil and fuel inventories decreased last week, suggesting a healthy demand.

Technical Elements

Largecaps appear to have joined the small- and mid-cap stocks that have been heavily pressured to sell in recent days, according to Rahul Sharma, Head of Technical and Derivatives Research at JM Financial Services.

"Nifty has a derivatives support at 22,000 so any sustenance below the same should be taken as an indication of caution for longs, said  The only silver lining today has been in select private banks and fmcg stocks which have held their ground amidst a market-wide selloff," he said.

The Inflation Rate in India

India's headline inflation rate decreased from 5.10 percent in January 2024 to 5.09 percent in February 2024, but it stayed close to the MPC's tolerance level upper band. Fuel and Core-CPI moderated, but the food price index remained high.

In addition to the usual monsoon showers, food prices may moderate in the upcoming months due to an increase in rabi sowing. In addition to domestic price reductions for LPG and CNG, fuel costs may continue to be benign due to a slowdown in global demand, according to Shraddha Umarji, Prabhudas Lilladher's institutional research economist.

"The Core inflation will be assisted by easing global commodity prices and elevated borrowing costs eroding demand in the near term. Indian Inc’s stable growth prospects coupled with easing inflationary concerns will be a guiding factor for the MPC decision at the forthcoming meeting," she added.