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Sensex, Nifty plunge for second straight session: Four factors behind the market crash

Sensex fell 540 points to 52,013 and Nifty lost 174 points to 15,578 in afternoon session

The crash comes a day after Sensex closed 586 points lower at 52,553 and Nifty fell 171 points to 15,752. The crash comes a day after Sensex closed 586 points lower at 52,553 and Nifty fell 171 points to 15,752.

Indian benchmark indices slipped for the second straight session today as global markets were roiled by concerns over growing cases of Delta variant of Covid -19 in UK, US and most parts of Asia. Sensex fell 540 points to 52,013 and Nifty lost 174 points to 15,578 in afternoon session.

The crash comes a day after Sensex closed 586 points lower at 52,553 and Nifty fell 171 points to 15,752.

Here's look at four factors that led the Indian equity market lower today.

Rising cases of coronavirus variant: Rising cases of the highly contagious Delta variant of coronavirus in UK, US and mostly all parts of Asia have threatened to derail the global economic recovery.   

With three days to go for the Tokyo Olympics, several athletes and more than 60 other non-athletes affiliated with the Games have tested positive. The Japanese government has decided to hold the games without spectators.

In US, the average number of daily new COVID-19 cases has tripled in the past 30 days, according to an analysis of Reuters data. The cases climbed to 32,136 on Sunday.

The average number of people hospitalised with COVID-19 has also risen 21% over the past 30 days to over 19,000, according to Reuters analysis. Deaths rose 25% last week to an average of 250 per day.

Sell-off in global markets: Global markets are crumbling as a resurgence of Covid-19 cases could lead to re-imposition of lockdowns across major economies of the world.

On Wall Street, S&P 500 fell 1.6% to 4,258.49, after setting a record just a week earlier. The Dow Jones Industrial Average slumped 2.1% to 33,962.04, while the Nasdaq composite lost 1.1% to 14,274.98.

In Asia, Japan's Nikkei 225 slipped 0.9% to 27,417.75. South Korea's Kospi shed 0.6% to 3,226.19. Australia's S&P/ASX 200 declined 0.5% to 7,252.20. Hong Kong's Hang Seng lost 1.1% to 27,189.43, while the Shanghai Composite fell 0.2% to 3,531.54.

Concerns over high valuation:  Indian and US stocks were trading at high valuations before the start of this week's trade. The markets had gone too far, too soon pushed by earnings effect and signals of recovery in the global economy post the previous wave of pandemic, said analysts. Now, investors are selling their positions as delta variant of Covid -19 tightens its grip across the world.

"The fact is that at high valuations when investors are sitting on big profits, any fear can trigger profit booking and corrections. This correction is good for the markets. In the absence of corrections, the excessive valuations will render the inevitable crash very severe and painful. A major correction is unlikely in India since we have already corrected a bit from the recent record high," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Selling by foreign investors:  Foreign portfolio investors (FPIs) have offloaded Indian equities worth Rs 4,938 crore in July so far, according to data available with NSDL. This is in contrast to June this year, when they bought equities worth Rs 17,215 crore.