Sensex crash today: Why are markets falling and how low will they go?

Sensex crash today: Indian stock market's fall defies global trade setup as the S&P500 had hit a record high overnight. So what's happening?

Sensex fell over 900 points and reached below the 73,000-level while Nifty dropped over 1% today (March 13). It was the worst single-day fall for smallcap index since December 2022 which fell 5% while midcaps lost 3%. Microcaps and SME stock indices dropped around 5% each. With this, market capitalisation of all BSE-listed stocks reduced by ₹12 lakh crore and is currently at ₹374 lakh crore.

The Sensex crash defies global trade setup as the S&P500 had hit a record high overnight ((ANI))

The crash defies global trade setup as the S&P500 had hit a record high overnight and FIIs have also bought Indian stocks and invested $3 billion so far in the month.

What has led to the fall in Sensex, Nifty and smallcaps?

1. Sebi stress test could be a major reason for the crash as Sebi chairperson Madhabi Puri Buch put out a froth warning on smallcaps and midcaps. After the market regulator asked mutual funds last month to put in place a system to protect interest of smallcap and midcap investors, Madhabi Puri Buch said, “There are pockets of froth in the market. Some people call it a bubble, some may call it froth. It may not be appropriate to allow that froth to keep building.”
2. Sebi chief also warned that valuation parameters are off the charts and not backed by fundamentals leading to "irrational exuberance".
3. ICICI Prudential Mutual Fund: Following Madhabi Puri Buch's comments, ICICI Prudential Mutual Fund temporarily suspended fresh subscriptions via lumpsum mode to smallcap and midcap funds.
4. On Tuesday, Indian stock market faced heavy selling pressure as majority of indices ended in red which included smallcap and midcap indices which are still under huge selling pressure. In the BSE Smallcap index over 80 per cent stocks have recorded negative returns since February 19. In the same period, Nifty has gained nearly one per cent.