Black Tuesday: The Real Reason Why Sensex Fell 6,230 Points, Nifty Dropped 1,983 Pts On June 4

Bears were let loose on Tuesday, flattening the Indian stock market to the point Sensex lost 6,234.35 and Nifty 50 gave up a mind-boggling 1,982.45 points in 1 day. That's a lot, and it was unexpected! Where are the mainboards of BSE and NSE now? Sensex and Nifty have erased 2024 gains so far. But that's not all! June 4, is safe to be called a Black Tuesday for Indian stocks since Sensex and Nifty saw even bigger crash than the first nationwide lockdown of the Coronavirus pandemic, and it is also the biggest single-day fall even surpassing the Great Recession of 2008 in terms of points.

On June 4, 2024, Sensex nosedived by 6,234.35 points or 8.9% to hit an intraday low of 70,234.43. Meanwhile, Nifty 50 shed up to 8.52% or 1,982.45 points to hit an intraday low of 21,281.45. Sensex ended at 72,079.05, down by 4389.73 points or 5.74%, and Nifty ended at 21,884.50 lower by 1,379.40 points or 5.93%.

Sensex's YTD performance is marginally down, and that of Nifty is slightly up by 0.7%.

The last time Sensex was above 70,200 levels was on January 23, 2024, at 70,239.43, and Nifty was above the 21,200 mark on January 25 of the current year where it stood at 21,247.05. Both were day's lows of that time. In percentage terms, Sensex and Nifty fell the most since the pandemic's first nationwide lockdown that came into effect on March 25, 2020.

Sensex had dropped by 3,934.72 points (13.15%) and Nifty plummeted by 1,135 points (12.98%) on March 23, 2020, due to recession fears which were triggered by coronavirus-led lockdowns.

And even deeper, the Indian stock market faced its biggest single-day loss, even steeper than the Great Recession of 2008. With the US economy in recession at that time, the market globally was in a frenzy of selling. On January 21, 2008, Sensex nosedived by 1,408 points to 17,605 leading to one of the largest erosions in investor wealth. Eventually, BSE halted trading for a while in the second half of the session, owing to a technical snag although its circuit filter allows swings of up to 15% before stopping trading for an hour, as per Wikipedia.

Time skip, trading was halted in many stocks due to the nerve-wracking selloffs in them on June 4 as well.

Up till June 3, bulls held the command and Sensex touched its new lifetime high of 76,738.89, with Nifty 50 hitting its record high of 23,338.70. DIIs continued to buy strongly, and FIIs were warming up to the domestic equities. Adani, Tata, and Reliance stocks witnessed extraordinary upside contributing heavily. The banking stocks with Bank Nifty near 51,000 were the big eye-candy of investors. And let's not forget, PSUs of all sectors, were the star performers!

So why did the market witness its record-breaking rally to record-breaking falls in a matter of two days?

A host of factors have played a role, but mostly mayhem emerged among investors as the election verdict became clearer and clearer. GoodReturns.In earlier reported that it was not a matter of whether BJP and its right-wing NDA will win the Lok Sabha Election 2024, but instead, the case was by how much. And that has come to reality, playing a major role on June 4th!

Vikram Kasat, Head - Advisory, Prabhudas Lilladher said, "How quickly things change in 24 hours! The exit polls were wrong. Has the situation changed on the ground level? Does Modi Ji still not form the government? Are we going to have a new PM? We all know the answers to these questions, but the new verdict will likely push the new government to be more inclusive. This inclusivity could drive consumption to an even larger scale across the country."

Meanwhile, Amit Goel, Co-Founder and Chief Global Strategist at Pace 360 said, In the run-up to India's 2024 general elections (18th Lok Sabha elections), the exit polls were predicting the best-case scenario for the Indian markets, with the NDA expected to get around 350-360 seats. Indian equity markets surged more than 3% on June 3, driven by the exit poll outcome predicting a significant win for the BJP-led NDA for the third time in a row."

However, Goel added, "Contrary to expectations for a huge surge, Indian markets have dropped significantly...as early trends show that the BJP may not achieve the huge majority indicated by the exit polls."

It was the loss in NDA seats that has swept the market off its feet. Manish Chowdhury, Head of Research, StoxBox said, "Markets have reacted sharply to the initial trends of the NDA leading on around 290 seats which look way behind the exit polls which were projecting around 350-370 seats. With the NDA still looking to form a government, though, with the important support of coalition partners, markets look jittery about the prospects of strong decision-making. Markets believe that the reformistic approach, which was a hallmark of the previous two terms, might take a backseat in the third term. However, we sense that it is still early to jump to conclusions and should ideally wait for a clearer picture."

The latest poll results suggest that the current government may likely have dependence on allies in making key policy decisions.

Yashovardhan Khemka, Senior Manager, Research & Analytics at Abans Holdings said, "The Election results are showing a less than halfway mark for the current BJP government, Pointing towards a coalition government. This will lead to dependence on allies in making key policy decisions, and sharing certain cabinet seats, which will lead to policy paralysis and uncertainty in the government's functioning. The markets are pricing the risk associated with this scenario, and the potential impact of a shift toward socialistic policies by the government, thus leading to sell-off in the market."

With the current government, investors were optimistic as the economic growth was resilient and top-game globally, while Indian stocks were skyrocketing to new highs time after time overcoming major events like geopolitical tensions, inflationary pressures, and multi-year high interest rates. Further, the order book and execution pipeline in sectors like defence, railways, automobile, energy, and infrastructure among others is transformative and positive for long-term prospects.

That is why, Manish Jain, Director - Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets explained that Investors like certainty and continuation of policies. India is a long-term structural growth story. A lot of elements are in place. Over anything the economics should prevail.

But Jain is optimistic about the economy and market despite the latest election results.

Jain added, "We are already at the top in factors like GDP, market cap, demographic dividend etc. It will be an endeavour for all the policymakers to take the country to further heights."

He further said, "I don't think any derailment on these efforts is in anybody's interest. As a country, we have seen many regime changes. Businesses and markets have weathered all of it and good businesses have always rewarded the investors. If valuations get more reasonable from here on because of some factors, more the reason to invest in India further."

Kasat also said, "The uncertainty might create initial apprehension, but there's potential for significant positive developments once the new government settles in and starts implementing its policies."

Other key factors that played the role for the Bears bandwagon were that the Indian stock market was expensive and a sharp correction was warranted.

As per the latest update, of the total 543 seats, BJP's NDA is leading with 294 seats and Congress-led I.N.D.I.An alliance bags 233 seats. Others won 16 seats. As of now, NDA lost 59 seats from the previous election, and the INDIA bloc recorded 115 seat surges.