Sensex crashes 700 points, Nifty 50 drops to 24,150- key factors behind the stock market decline explained

Stock market today: Stock market benchmarks, the Sensex and the Nifty 50, suffered significant losses in morning deals on Monday, 20 July, amid weak global cues.

The Sensex crashed over 700 points, or nearly 1%, to an intraday low of 77,445, while the Nifty 50 declined over 180 points, or almost 1%, to an intraday low of 24,150.

However, the mid and small-cap segments remained resilient. The Nifty Midcap 100 index climbed 0.20%, while the Smallcap 100 index rose by 0.30% during the session.

Let's take a look at five key factors that are driving the domestic stock market down:

Strong profit booking in banking and financial heavyweights is the main factor why the Indian stock market is falling today.

HDFC Bank, Axis Bank, and Kotak Mahindra Bank were the top three drags on the Sensex index around 10 AM.

Shares of Axis Bank crashed 6%, while those of HDFC Bank declined over 5% during the session. Kotak Mahindra Bank's share price dropped 3.5% in the morning trade.

Among the sectoral indices, Bank Nifty crashed 1.6%, while the Financial Services index plunged 2%

The strong decline in banking and financial stocks followed the Q1 results of some banking heavyweights over the weekend.

Experts highlighted that Q1 margins of some heavyweights failed to meet expectations. Moreover, their margins may remain under pressure for the next few quarters, as the RBI may raise interest rates in the near future due to rising crude oil prices and increased inflationary pressures.

"The margin pressure in select banks is weighing on market sentiment. While deposit growth has improved, margins have not expanded along the expected lines. That is what's affecting sentiment. The market is also anticipating rate hikes, and there are concerns that margin pressure may continue. That's why investors are booking profits," Ajit Mishra, SVP of Research at Religare Broking, noted.

Weak global cues amid escalating US-Iran tensions further weighed on sentiment. Asian markets traded lower, with South Korea's Kospi crashing 5% during the session, while oil prices climbed to their highest level in more than a month amid heightened tensions between the US and Iran.

Brent crude September futures jumped more than 2% to trade above the $90 per barrel level, as the US and Iran intensified their attacks in the Middle East, raising concerns over energy supplies through the Strait of Hormuz.

Rising crude oil prices have revived concerns of an inflation flare-up, which could drive the central bank to raise rates. Moreover, elevated crude oil prices can strain India's fiscal position as the country is the world's third-largest importer of crude oil.

“Brent crude spiking above $90 is the strongest headwind. If this trend continues, India’s vulnerability to energy shock will resurface with negative implications for the rupee and FPI flows," VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.