5 reasons why Sensex crashed over 850 points today

The equity market crashed on Tuesday with Sensex and Nifty declining over 2% each on heavy selling in PSU banks and auto indices.

While Sensex fell 866 points to an intra day low of 36,466, Nifty breached 11,000 on the downside to hit 10,772, a fall of 251 points intraday. While Sensex fell 866 points to an intra day low of 36,466, Nifty breached 11,000 on the downside to hit 10,772, a fall of 251 points intraday.

The equity market crashed on Tuesday with Sensex and Nifty declining over 2% each on heavy selling in PSU banks and auto indices. Despite several efforts by the government to boost the economy, market sentiment was hit by weak macroeconomic data releases and deteriorating auto sales for August. While Sensex fell 866 points to an intra day low of 36,466, Nifty breached 11,000 on the downside to hit 10,772 , a fall of 251 points intraday. Only 2 out of 30 stocks on Sensex and 2 out of 50 stocks on Nifty ended in the green.

Market breadth was in favour of declines with the advance-decline ratio at 1:2. Overall 1,189 stocks declined on NSE, with 453 scrips advancing and 99 unchanged. Similarly, on BSE, 1,605 stocks fell against 825 ending higher with 176 remaining unchanged. The Sensex finally closed 769 points or 2.06% lower and Nifty lost 225 points or 2.04% to 10,797 mark.

Here's a look at top 5 factors which weighed on market today:

Weakness in auto stocks

Auto stocks fell in early trade today after automobile manufacturers including Maruti Suzuki India, Hyundai, Mahindra & Mahindra, Tata Motors and Honda reported a high double-digit decline in their sales in August as the auto sector continued to reel under one of the worst slowdowns in its history.

While Maruti reported a 33 per cent drop in August sales at 1,06,413 units, sale of passenger vehicles by Tata Motors fell 58 per cent during the month under review. Honda Cars India and Toyota Kirloskar Motor (TKM) sales dropped 51 per cent and 21 per cent, respectively. Mahindra and Mahindra (M&M) too reported a 25 per cent fall in total sales at 36,085 units in August.

TVS Motor Company reported a 15 per cent fall in August sales to 290,455 units. Ashok Leyland's domestic sales fell 50 per cent to 8,296 units in August. Similarly, Royal Enfield-maker Eicher Motors saw monthly sales in August decline 24 per cent to 52,904 units.

Tracking the fall in sales, the Nifty auto index tanked 111 points or 1.59% to end the day's trade at 6,897.75 mark.

Weak macroeconomic data

Official data released after market hours on Friday showed that GDP growth fall for a fifth straight quarter to 5 per cent in June 2019-20, slowest pace since March 2013, hit by a sharp deceleration in manufacturing output and subdued farm sector activity.

This slowdown can also be relative to a slump in consumer demand and private investment amid deteriorating global environment. The GDP growth was at 8 per cent in the same quarter of 2018-19.

"GDP growth slowing down to 5 per cent is indeed worrying," said Deepthi Mathews, Economist at Geojit Financial Services, adding that the number shows that the economy has not still entered the recovery path.

Growth of eight core industries also dropped to 2.1 per cent in July, in comparison to 7.3 per cent during the corresponding month last year, mainly due to contraction in coal, crude oil and natural gas production, according to government data released on Monday.

Additionally, the country's manufacturing sector activity declined to its 15-month low in August, owing to slower increases in sales, output and employment, the IHS Markit India Manufacturing Purchasing Managers' Index showed. This spoiled sentiment on benchmark indices keeping them in negative territory throughout the day.

US-China trade war keeps global investors cautious

Retaliatory trade tariffs rattled markets in August globally. Bourses in Shanghai, Hong Kong, Korea and Japan ended on a weak note after the US and China on Sunday put in place their latest tariff increases on each other's goods. The United States started charging a 15% tariff on about $112 billion of Chinese products. China responded by charging tariffs of 10% and 5% on a list of American goods. "These American tariffs seriously violate the consensus reached by the leaders of our two countries in Osaka," Beijing's commerce ministry said, referring to trade discussions in the Japanese city in June.

"The Chinese side is strongly dissatisfied and resolutely opposed to that. In accordance with relevant WTO rules, China will firmly safeguard its legitimate rights and interests," the ministry said.

Earlier, President Trump and China's leader Xi Jinping had agreed to "fully engage" on trade when they met in Osaka during the G20 summit in Japan.

Mergers of public sector banks

PSU bank stocks fell in trade today after Finance Minister Nirmala Sitharaman on Friday unveiled a mega plan to merge 10 public sector banks into. Reliance Research continued to remain cautious on the PSBs post the consolidation announcement and said, "Weak spreads and merger-related challenges should limit any meaningful expansion in return on assets over the medium-term, ruling out any significant catch up in valuations. Moreover, the risk of higher corporate slippages and the recent surge in non-corporate slippages could prove to be detrimental."

"Nonetheless, implementation of governance reforms and their positive impact on banks' risk management will be a positive for valuations," Reliance Research daily market report added. Reacting to the news, Nifty PSU Bank index fell up to 4.87% or 120 points to 2,353 level. Additionally, shares of Punjab National Bank, Indian Bank, Oriental Bank of Commerce and Canara Bank fell between 5% and 9% in trade today.

FPIs become net sellers for a second straight month

Foreign investors pulled out a net amount of Rs 5,920 crore from the Indian capital markets in August and worth Rs 2,985.88 crore in the month of July.

Despite the stimulus provided by FM Sitharaman to revive the economy, foreign investors continued to exit the Indian stock market. Sitharaman had withdrawn additional surcharge on long-term and short-term gains made by FIIs and domestic investors imposed in the budget to improve the overall market sentiment.

According to the latest depositories data, FPIs withdrew Rs 17,592.28 crore from equities and pumped in a net sum of Rs 11,672.26 crore in the debt segment, translating into a total net outflow of Rs 5,920.02 crore during August 1- 30, according to a PTI report.

Edited by Rupa Burman Roy

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