This is the kind of market volatility you do get to see on monthly F&O expiry days. As you would have seen in the Nifty chart, the fall was almost vertical in the last one hour. Here are two reasons why the markets fell so sharply on Thursday.

F&O expiry put pressure on markets

Normally, futures positions get rolled over into the next month either on or before the expiry day. That changes when there is uncertainty in the coming series. As we are aware, the election results will be declared on 23rd May and the actual May expiry will only happen after the results are announced. Hence, traders do not want to take a risk of being committed to the market either ways as the next month could see volatility as the election rounds progress. Also many large HNIs and institutions that were holding on to arbitrage positions sold off their cash market positions and let their futures position expire. This is what actually led to the big selling in the last one hour of trading.

Rupee and the oil prices also played a part

We cannot forget that the rupee and the oil prices also played a part in the market weakness on Thursday. The rupee touched a 6-week low of 70.25/$. It has been under pressure even since the RBI completed $10 billion of dollar swap auctions in 2 rounds. The latest round of dollar swap auctions happened at a 3-year forward price of above Rs.78 and that has put pressure on the forward premiums leading to dollar weakening. Brent Crude, meanwhile, touched a high of $75.60/bbl after Russia also expressed plans to curb exports of crude oil. The combination of weaker rupee and higher oil prices had an impact on markets. Of course, in the evening, the oil prices did come down to $74.47/bbl and that could impact would most likely be seen on Friday.