Mumbai: The thirty scrip Sensitive Sensex and Nifty50 had a mighty crash on Monday. At end of trading hours, the Sensex barometer read 35,634.95, down by 1941.67 points or 5.17%
The Nifty50 ended the day, down by 538.00 points or 4.90% to 10,451.45.
Most broader indices and sector trading indices were in the red down by a margin of 2-5 percent.
On the Sensex heatmap, a sea of red formed itself with no stock managing a positive number. Asian Paints managed to hold on to a 0.48% intra-day loss while ONGC stocks went down by 16.26% to 74.65 per share.
It was a sell-off across sectors, led by financial, metal, energy and IT stocks - weighed on the markets. On the sector side the bulk of losses were seen on counters of Energy, Metal and Oil & Gas (9% to 5.22% intra-day loss). Except for BPCL, Hindustan Petrochemicals and Chennai Petroleum Corporation, most energy led stocks were in the red. ONGC, Hindustan Oil Exploration Company, RIL, Oil India, Adani were some of the stocks that traded to a low.
On the commodities side, Crude prices traded low on the back of Saudi Arabia shocking global markets with additional production and slashed rates. Brent crude futures are currently trading around $34 per barrel.
Gold in US spot markets touched a seven year high of $1703 per troy ounce implying that investors are making an exit from stocks and equities and were raring to get going with the safe haven. Gold Futures for the month of April in India, trading on MCX were reported at Rs 44,185, lower than the lifetime high of Rs 44,961 per ten grams. In retail markets, jewelers were selling Gold at 43860 per ten grams (according to IBJA). Silver was quoting a price of Rs 45,155 per kilo. Silver rates last working weekday were reported at Rs 47,125 per kilo.
Also Read: Live Gold Rates
In a nutsheel, foreign investors are exiting equities while domestic investors are picking up their positions. Data on FIIs vs DIIs paints a grim picture, suggesting that Rs 21,937 crores of money has been taken out by FPIs in the previous fifteen trading sessions.
Here are three reasons for the downturn:
1. Covid-19 induced fears:
Most global markets aren't doing well and the performance on Indian domestic equities is not a one-off case. News-agency AP observed main stock indices in London and Frankfurt down by over 8% at the start of trade. Tokyo closed down by 5.1% while Sydney lost 7.3% Shanghai was off by 3%. Latest numbers on Japan's economy for October-December shows growth at 7.1%. Analysts called it dismal and said that it stoked fears of recession.
Fears of slower recovery on Covid-19 have prompted several well-heeled corporates to revise their earnings cycle. While countries braced up in isolating people and towards swift remedies, investors and several organisations have woken up to the harsh realities of disruption in supply-chain cycles.
2. Yes Bank Fiasco:
A bank the size of Yes Bank being thrown into an ICU (read: Moratorium) is a significant pressure on markets. For market players such as fund houses, the news that additional tier (AT1) capital bonds being written off permanently is a bad news. The news is bad because at least eleven fund houses have been reported of owning as much as Rs 3,000 crores of Yes Bank papers.
Ironically, stocks of Yes Bank in trade on Monday were the sole gainer on the BSE Bankex. Yes Bank gained by 31.17 percent to trade at 21.25 per share. Its peers such as HDFCBank, KotakBank, AxisBank, City Union Bank, ICICI Bank, SBI, Federal bank, IndusIndBank, RBL bank were in the red.
Ratings agency Fitch explains the pressure for Indian banks by stating that the condition remains challenging. Senior Director Duncan Innes Ker said Fitch expects India's economic growth to accelerate to 5.6 per cent in the financial year ending March 2021 (FY21) from 4.6 per cent in FY20. "Indian banks may require significant additional equity beyond this by FY21 to support loan growth, cover non-performing loans and build buffers over Basel III minimum standards," said Ker.
3. Global Oil Correction:
Any average Indian would thank Saudi's act of slashing rates and increasing production. After all, doesn't cheaper crude mean cheaper petrol and diesel? Surprisingly that narrative can be dumped for being too naive to be called a logic. This is simply because lower crude rates do not percolate immediately into lower rates. The OMCs (Oil Marketing Companies) guided by the government's policy systematically revise daily retail-rates that tallies complicated taxes. A lower crude rate could however still mean a larger gain to the exchequer in terms of lower dollars spent in importing crude.
Lower crude rates on the other hand also have a considerable impact on export numbers. India stands in the world's top-10 exporters of petroleum products and any direct increase in crude price significantly affects India's exports basket.
Shrikant Chouhan, SVP for Equity Technical Research at Kotak Securities says in a note, "The market fell mainly due to excessive weakness in the international crude oil price that has fallen almost 25 per cent from the previous close. However, in the latter part, the crude price rebounded by almost 10-12 per cent. On the domestic front, despite a steep fall there were number of positive developments like a proper road map for disinvestment, fall in crude prices, fall in bond yields and clarification from telecom companies about their dues to the DoT."
Speaking on support levels, Chouhan adds, "Technically, the market rebounded sharply after hitting a major support of 10300 [Nifty]. Today, the Nifty has completed price and time-based correction. Till the index is above 10270, we could see a strong bounce back in the market. The resistance exists at 10500, 10630 and at 10750. Below 10270, Nifty would halt at 10140 or at 10000."
Expected a brief answer? Here's a quick summary:
Three things:— Deepak Shenoy (@deepakshenoy) March 9, 2020
1) Oil downside shock with Saudi going ballistic
3) Yes bank issue in India
It's all crazy, building up panic in markets. But this too will pass. However, any buyer needs to be aware that there's a chance of another 20% fall easily (and 20% upside)