Stock market crash: Sensex and Nifty fall sharply, crude oil dampens investor mood

Stock Market Crash: Thursday was a disappointing day for investors in the Indian stock market. As soon as the market opened, major indices like Sensex, Nifty saw a huge drop of up to 1 percent. There was no single reason behind this massive selloff. The prevailing economic conditions across the world have completely spoiled the domestic market sentiment. The biggest shock has been due to crude oil prices. Brent crude oil has crossed $102 per barrel in the international market. Such crude oil fires have always been a concern for the Indian economy. This increases the country’s import bill and also raises the risk of inflation spiraling out of control.

Along with this, negative signals were also received from America for the equity market. There the 10-year Treasury yield rose to a high of 5.11%. Whenever there is such a sharp jump in US bond yields, global equity market valuations come under severe pressure. Foreign investors start withdrawing their money and moving it to safer places. These two major global factors broke the back of the Indian market today.

IRDAI attack on insurance shares

Financial sector shares were the biggest losers in this overall market decline. Big names like HDFC Life, Bajaj Finance, Axis Bank, SBI Life Insurance, Shriram Finance, Bajaj Finserv were among the top losers today. This major decline in the insurance sector is directly related to the new decision of the Insurance Regulator (IRDAI).

IRDAI has recently released an important consultation paper regarding distribution regulation and setting cost of management (EoM) limits. There are several provisions in this proposal which may directly affect the profits of the companies. Regulators want to curb huge payouts received by distributors. This will reduce costs for policyholders. Until now the insurance industry has been operating on an aggressive ‘push’ sales model, i.e. customers are pressured to sell policies. Now the regulator is gearing up to change it to a customer-driven, effort-based model. Investors fear that these major changes will cut into companies’ margins. This fear led to heavy profit booking in the shares of insurance companies today.

Surprise in midcap stocks

Amidst all the ups and downs in the market, there is one segment that has stood firm. While there is an atmosphere of fear among investors in large-cap stocks, domestic investors are steadily pouring money into mid-cap and small-cap stocks. Chief Investment Strategist at Geojit Investments Dr. V.K. Vijayakumar believes that this segment continues to see strong domestic liquidity.

Despite high valuations, Indian investors prefer to add growth stocks to their portfolios. This is the reason why mid-cap and small-cap stocks are fighting valiantly against this market decline. In contrast, large-cap stocks are looking sluggish despite being at decent valuations. However, experts warn that this trend will not last forever. If the prices of crude oil and bond yields do not soften soon, after some time there may be a big correction in the shares of these small companies.