After witnessing their worst single-day fall ever, Sensex and Nifty closed nearly 8% lower in Thursday's trade. Sensex ended almost 3,000 points lower and Nifty closed at 9,500 today, with all the sectors in the red. The crash was led by major volatility in global markets that continued to panic due to the spread of the coronavirus.
Amid rising cases of coronavirus and over 5% drop in crude oil prices, BSE Sensex closed 2,919 points lower at 32,778, while 50-share index NSE Nifty ended 868 points lower at 9,590.
Earlier, within minutes of the opening session on Thursday, equity benchmarks plummeted 6% each, tracking global equities, following a weak trend from overseas as investors turned jittery over mounting fears of Covid-19 infections.
Traders are selling off on rising fears of the virus pandemic, that might lead to a severe global recession. Domestic investors also awaited official numbers of Consumer Price Index (CPI) and Index of Industrial Production (IIP), to be released later in the day.
Here's a look at five factors which led to crash in Sensex, Nifty today.
1. Weak global cues
Indian markets opened with deep cuts on the back of negative global cues after President Donald Trump banned travel from the European Union for 30 days. Market participants further turned negative, following a Reuters report that the White House had ordered top-level coronavirus meetings to be classified.
Fresh travel bans worldwide, coupled with World Health Organisation terming coronavirus as pandemic turned investors pessimistic over the volatile markets globally.
Overseas, Wall Street stocks plunged on Wednesday, with the Dow confirming a bear market for the first time since the financial crisis, post several pandemic relative cues, that heightened fears of a global economic recession.
Besides this, Goldman Sachs on Wednesday called time on S&P 500's 11-year bull run, the longest on record, which is likely to end with a drop of 28% to 30% from the record highs set last month, amid the coronavirus outbreak and oil crash. Tracking market sentiment from the US, Asian stocks too fell around 4-6%.
2. Oil prices
As US oil supplies increased for a seventh straight week, prices plunged about 6% on Thursday. This was coupled with oil giant Saudi Arabia announcing an increase in production in the coming weeks. Oil prices also extended losses, with crude benchmark trading at $33.98 per barrel, down 5.06%, after a 4% drop in the previous session.
Amit Gupta, CO-Founder and CEO, TradingBells said,"At the same time, escalating tensions between the US and Russia over oil prices are pushing crude oil prices further down, and the same is escalated further due to travel bans across the globe. With fewer people travelling, airlines and tourism industry along with all ancillary sectors will take a hit and this will in turn not help oil prices gain any momentum in the near-term."
3. Coronavirus fears
Coronavirus has created uncertainty and panic in global markets, that are on course for the worst week since the financial crisis of 2008. Panic-stricken global investors fled to bonds to hedge the economic shock of the coronavirus, backing away from equity market investment. The virus outbreak has taken a toll on policymakers worldwide, spreading across geographies and businesses, with supply dislocations, travel restrictions broadening out market volatility further.
Further, the increase in the number of infected COVID-19 cases kept investors on the edge. The Ministry of Health has confirmed that the number of infected cases from coronavirus in India has risen to 73 on Thursday, which further deteriorated the equity market's trend today. Of this, 56 cases were India nationals, while 17 cases were foreigners.
Vinod Nair, Head of Research at Geojit Financial Services said," Recession fears increased after WHO declared coronavirus a pandemic which forced investors to sell off risky assets. Fresh travel bans across nations is contributing to the fears that economic impact will be much larger than earlier estimates."
4. FII outflows
Continued FII outflows in domestic markets also led to a fall in equities. As per Standard Chartered, FIIs have sold shares worth Rs 208,300 crore in the current month and Rs 375,200 crore since the beginning of 2020.
This led to the local currency Rupee opening lower by 61 paise at 74.25 per dollar versus previous close 73.64. It later plunged 82 paise to 74.50 against US dollar.
S Ranganathan, Head of Research at LKP Securities had recently suggested that the sheer velocity of FII selling was enough to create panic across equities in India.
5. The near-term outlook for Nifty
With consecutive falls in equities worldwide, the near term outlook for Nifty is likely to be shaky, with global growth at a standpoint, suggest market experts. Further, on Thursday, Nifty broke all its technical supports today, which were placed at 10,230 and 10,000.
Amit Gupta, CO-Founder and CEO of TradingBells suggested that margin calls and stop losses are triggering panic selling in the market in the short run, which is creating a cyclical effect.
Siddhartha Khemka, Head-Retail Research at Motilal Oswal Financial Services commented that markets would continue to remain highly volatile and weak till the fast spread of coronavirus gets controlled as the overall trend is under pressure and resistances are gradually shifting lower.
Manav Chopra, CMT, Head Research - Equity, Indiabulls Securities said, "Nifty almost corrected one thousand points and panic was across the board. Next to meaningful support on the downside is placed between 8,900-9,100 levels. So far important support levels have been breached easily on gap downs. Investors should refrain from catching the falling knife."
He suggested 9,400-9,100 as recent support levels for nifty, with resistance at 9,850-10,000 level.
Advising investors, Siddharth Mehta, Founder & CIO, Bay Capital said," While markets may go down further, investing when terrified is one of the hardest things to do. It is through this terror that one must think rationally and look to buy great businesses which are unleveraged , which are stellar capital allocators. These businesses should have the highest governance standards which will not just survive but come out stronger over the next 5 to 10 years and thus potentially provide outsized returns to the intrepid investor."