Sensex falls 540 points, Nifty ends below 11,800: Key factors behind the market crash

Sectorally, all the indices traded in red today, with the auto index dropping over 3%, followed by a 2.7% decline in media and a 2% drop in realty index

On the currency front, Indian rupee depreciated 23 paise and settled at 73.84 per US dollar on Monday amid muted domestic equities and strong American currency On the currency front, Indian rupee depreciated 23 paise and settled at 73.84 per US dollar on Monday amid muted domestic equities and strong American currency

Benchmark indices Sensex and Nifty ended sharply negative on Monday as surging coronavirus cases and lack of clarity on the US stimulus package kept sentiments bearish in global markets.

Sectorally, all the indices traded in red today, with the auto index dropping over 3%, followed by a 2.7% decline in media and a 2% drop in realty index.

On the currency front, Indian rupee depreciated 23 paise and settled at 73.84 per US dollar on Monday amid muted domestic equities and strong American currency. On Friday, the Indian Rupee slipped 7 paise to settle at 73.61 per US dollar

Reliance Industries, followed by Tata Steel, Bajaj Finance, Asian Paints, M&M, ICICI Bank and Bajaj Finserv were among the top laggards in the Sensex pack today. On the other hand, IndusInd Bank, Nestle India, PowerGrid and L&T were among the gainers.

S Ranganathan, Head of Research at LKP Securities said," Indices saw more than a percentage cut today as several countries in the EU are slated to go into a lockdown. Auto stocks were pounded today on apprehensions of a softer festive season and the late afternoon selling in metal stocks pushed Indices into the red during the earnings season. Value buying was witnessed today in Insurance companies and Midcap Cement".

Here are 5 key factors that weighed on the benchmark indices today:

1. Global markets

Asian markets traded mixed for most of the day as indecision on stimulus in the US market saw quiet trade globally. China's Shanghai Composite was down 0.82% and South Korea's Kospi fell 0.72%, while Australia's ASX 200 declined 0.18% and Japan's Nikkei was down 0.09%. Traders said investors are also awaiting Chinese data on GDP & manufacturing numbers.

European equities fell on Monday as the resurgence in the rise of Covid cases caused concerns of a fresh set of lockdowns, reducing economic activity further. While Germany's DAX fell 2%, French index CAC was trading 0.62% lower and London's FTSE dropped 0.5%.  

Indices on Wall Street closed a tad higher after sluggish trade on Friday as negotiations between Republican and Democratic leaders over more economic aid for the economy weighed on investors' sentiments.

The Dow Jones Industrial Average closed 0.1% lower, the S&P 500 gained 0.34% and the Nasdaq Composite added 0.37%.

2. Future-RIL deal

Shares of index heavyweight Reliance Industries Ltd (RIL) fell over 2% lower in Monday's early session trading as the top loser on both bourses BSE and NSE.

This was after American e-commerce giant Inc received an interim relief and Future Group was told by the arbitration panel to not proceed with the deal with Reliance Retail for Rs 24,713 crore.

"FRL has been legally advised that actions taken by the FRL or its board, which are in full compliance of the relevant agreements and eminently in the interest of all stakeholders cannot be held back in arbitration proceedings initiated under an agreement to which FRL is not a party. As per the advice received by FRL, all relevant agreements are governed by Indian Law and provisions of Indian Arbitration Act for all intents and purposes and this matter raises several fundamental jurisdictional issues which go to the root of the matter," Future Retail said in its press release.

Earlier in August 2020, RIL had announced the acquisition of the retail and wholesale business and the logistics and warehousing business from Future Group as going concerns for Rs 24,713 crore.

3. Soaring virus cases

Rising coronavirus cases in the US and Europe have recently caused a trend reversal in equity markets. In Europe, Spain announced a state of emergency, while France registered a record increase in infections over the weekend. Italy ordered bars to close early and shut public gyms in a bid to stem a resurgence of the second wave of cases through Europe.  

Worldwide, there were 433 lakh confirmed cases and 11.59 lakh deaths from COVID-19 outbreak. India's COVID-19 caseload breached the 79-lakh mark and the death toll from COVID-19 infections rose to 1.19 lakh, as of today.

Ajit Mishra, VP - Research, Religare Broking said," The news of rising COVID cases across Europe and the US is haunting markets across the globe including ours. Besides, participants are hoping for some clarity over the US stimulus package before the US election."

4. US virus relief aid

Globally, markets continued bearish trend from last week, amid delay in negotiations over a new US coronavirus relief aid.

US House Speaker Nancy Pelosi said it was still possible to get another round of COVID-19 aid before the November 3 election, but it was up to President Donald Trump to act. Meanwhile, Trump and Federal Reserve Treasury Secretary Steven Mnuchin countered that Pelosi must compromise to get an aid package.

Fresh rounds of coronavirus-induced lockdowns across Europe and the US have underpinned the need for more stimulus, to help recover from the sluggish pace of the global economy.

No concrete signs of an actual agreement on the new coronavirus relief fund by the U.S. before the upcoming elections have kept markets tepid.

5. Technical outlook

On markets closing today, Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments said:" We threatened the lower end of the range by piercing 11750 on an intraday basis but the Nifty was quick to bounce back to close above it. If the level of 11700 is breached, we can slide down to targets closer to 11450-11500."

Vinod Nair, Head of Research at Geojit Financial Services said,"Volatility was expected as we are nearing the US election date. The prices are high which limits the capacity of the market to handle uncertainties though the final outcome of the election is unlikely to change the long-term trend of the global market. Rising covid cases in the US & Europe and delay in US stimulus has added worries. Indian markets are taking a correction from the recent rally which has factored a lot about an uptrend in earnings growth due to positive Q2 results. Indian indices are expected to remain weak in the near-term and will be driven by the trend of ongoing Q2 result and developments in the US. A big correction is unlikely with 11,500 as strong support for Nifty50."

Shrikant Chouhan, Executive Vice President (Equity Technical Research), Kotak Securities said, "The Nifty index has formed large Red/Black Body candle that would not allow the market to sustain at higher levels. The sell-off was so intense that the Nifty dropped to 20 days SMA without any meaningful support, which was at 11715.  However, due to extreme oversold activity, Nifty reversed back sharply from the levels of 20 days SMA and closed at 11767.  Technically, the market is ready to hit the levels of 11600 on the minimum side and in the worst-case scenario11428 levels.

The strategy should be to short the Nifty if it bounces to 11830/11850 with a final stop loss at 11900 or below the level of 11710. We expect further weakness in the Bank Nifty if it breaks 23770 levels."

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