Dalal Street came under heavy selling pressure on Thursday, with the Sensex falling more than 600 points as financial stocks tumbled after the insurance regulator proposed curbs on commissions and distribution payouts. A spike in crude oil prices above $100 a barrel and renewed geopolitical tensions around the Iran-US conflict added to the pressure.
At 10:25 am, the Sensex was down 743.92 points, or 0.99%, at 74,084.33, while the Nifty fell 242.20 points, or 1.03%, to 23,204.60.
The sell-off was broad-based, with 14 of the 16 major sectoral indices trading lower. The Nifty Midcap 50 fell 1.41%, the Nifty Midcap 100 declined 1.19% and the Nifty Smallcap 100 dropped 0.76%. India VIX, a measure of expected market volatility, jumped 9.90% to 11.37.
Here are the key reasons behind today’s market fall.
INSURANCE COMMISSION PROPOSAL HITS FINANCIAL STOCKS
The biggest immediate trigger was selling in insurance distributors, banks and non-bank lenders with sizeable insurance distribution income after the insurance regulator proposed changes to commission and distribution payouts.
Shares of PB Fintech, the parent of Policybazaar, plunged 10%, while Max Financial also fell around 10%.
Among banks, Axis Bank fell 3.66%, while HDFC Bank declined 1.39%. Bajaj Finserv dropped 2.98% and Bajaj Finance fell 3.89%.
The proposals, unveiled in a consultation paper on Wednesday, seek to reduce commissions across life, health and motor insurance products, cap payouts on loan-linked insurance sales and gradually tighten insurers’ expense limits.
The proposed changes are aimed at lowering policy costs and curbing mis-selling. However, analysts cited in the market commentary said the reforms could disrupt existing distribution models and weigh on growth in an industry that relies heavily on agent and bancassurance channels.
Macquarie described the proposed commission cuts as “steep” and said they could hurt near-term growth as insurers and distributors adjust their business models.
PB Fintech appears particularly exposed because of its sensitivity to commission rates, while Axis Bank and HDFC Bank face greater risk than some peers from a potential impact on insurance fee income, according to the brokerage.
FINANCIAL STOCKS DRAG SENSEX, NIFTY
The pressure on financial stocks was visible across the sector.
The Nifty Financial Services 25/50 index fell 1.56%, while Nifty Private Bank declined 1.76%. Financial Services Ex-Bank dropped 2.62% and the Nifty MidSmall Financial Services index fell 2.61%.
Bajaj Finance was down 3.89%, Axis Bank fell 3.66%, Bajaj Finserv declined 2.98% and Kotak Mahindra Bank dropped 1.82%.
HDFC Bank fell 1.39%, SBI declined 0.75% and ICICI Bank was down 0.64%.
Given the large weight of financial stocks in the benchmark indices, the sharp decline in the sector has had a significant impact on the Sensex and Nifty.
CRUDE OIL RISES ABOVE $100
The second major concern for the market is crude oil.
Brent crude was trading at $102.24 a barrel in the latest market data, while WTI crude stood at $91.43. Brent had moved above the $100 mark in the previous session.
The rise came after Iranian President Masoud Pezeshkian said at the UN General Assembly that Tehran would “never surrender” to US pressure, raising concerns around the geopolitical situation and potential disruption to oil supplies.
For India, higher crude prices can increase the import bill and put pressure on inflation, the rupee and corporate earnings.
Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said, “The sharp spike in Brent crude above $102 and the US 10-year bond yield rising to 5.11% will weigh on the market today. So long as these two global headwinds remain, the prospects of a smart recovery in the market appear remote.”
GEOPOLITICAL TENSIONS ADD TO PRESSURE
The Iran-US conflict remains another major concern for investors.
The latest developments have raised uncertainty around the future supply of crude oil and the possibility of further disruption in the region. Any sustained rise in oil prices could add to inflationary pressures at a time when global bond yields are already elevated.
This has made crude one of the most important variables for Indian equities.
Vijayakumar said the market’s recovery would depend in part on the direction of crude prices and US bond yields.
FII SELLING REMAINS A BACKDROP
Foreign investor flows have also been a concern for Indian equities, although FIIs were buyers in the previous session.
FIIs bought Indian shares worth Rs 1,617.45 crore in the last session, according to the data provided. However, this comes against a broader backdrop of sustained foreign selling in Indian equities.
The buying in the previous session therefore provides some support, but has not changed the larger concern around foreign fund flows.
Thursday is also the listing day for the National Stock Exchange, making it an important day for the Indian primary and secondary markets.
The NSE IPO was subscribed 5.71 times during its three-day bidding period, with the issue priced at Rs 1,785 at the upper end of the price band.
Dr V K Vijayakumar said the NSE listing would be the market’s key focus today.
“Today the market’s focus will be on the NSE listing. Therefore, everything else will be pushed to the background,” he said.
He added that if the NSE stock becomes available at a fair price, it could be an opportunity for long-term investors to add the stock to their portfolios.
MIDCAPS, SMALLCAPS ALSO UNDER PRESSURE
The market fall was not limited to large-cap stocks.
At 9:41 am, the Nifty Midcap 50 was down 1.41%, while the Nifty Midcap 100 fell 1.19%. The Nifty Smallcap 100 declined 0.76%.
India VIX jumped nearly 10%, signalling a rise in expected volatility.
Vijayakumar said domestic liquidity has continued to support mid- and small-caps, with growth stocks in these segments attracting sustained buying despite elevated valuations.
He noted that this has created a gap between fairly valued large-caps and highly valued mid- and small-caps.
The Thursday sell-off is being driven by a combination of domestic and global factors.
The immediate trigger is the proposed overhaul of insurance commission and distribution rules, which has hit insurance distributors as well as banks and NBFCs with significant insurance fee income. PB Fintech, Axis Bank, HDFC Bank and other financial stocks are among those facing selling pressure.
At the same time, Brent crude has moved back above $100 amid renewed Iran-US tensions, adding concerns around inflation and India’s import bill. Elevated US bond yields are another global headwind.
The NSE listing will remain a major event through the session, but for the broader market, financial stocks, crude oil and geopolitical developments are likely to remain the key factors determining sentiment.
