Why Stock Market Crashed ?

The Indian stock markets took a sharp plunge with the S&P BSE Sensex and the NSE Nifty 50 falling over 3.5 percent each, wiping out Rs. 5.6 lakh crore of investor’s wealth in the first few minutes of market open. Investors have also lost Rs. 11 lakh crore in terms of capitalisation during the week.

This marks the sixth consecutive session of losses for the indices. The Sensex fell 1,448 points to close at 38,297.29 while Nifty fell 432 points to close at 11,201.75.

As many as 500 stocks on the BSE hit a fresh 52 week low which includes names like Bosch, Hero Motocorp, Lupin, ACC etc. among others.

Within sectors, the Nifty Metal index fell 7 percent followed by the IT Index which fell 5.6 percent, Nifty PSU Bank which fell 5 percent and Auto and Pharma which fell nearly 4 percent.

Let’s look at a few reasons why the markets are falling:

  1. Coronavirus Pandemic

There have been new coronavirus cases emerging in China which has infected over 83,000 people and over 2,800 dead. Governments and policymakers across the world are trying to take aggressive steps to contain the virus outbreak as well as the economic downfall.

Officials of the World Health Organisation (WHO) have said that the COVID-19 virus could become a pandemic as the outbreak spreads to developed economies. They have also warned that failure to prepare for the virus could be a fatal mistake.

The Head of Research at LKP Securities, S Ranganathan, said that China accounts for more than 15 percent of Global Gross Domestic Product (GDP) and with the Corona Virus spreading its wings so quickly, India witnessed selling in the Information Technology (IT) sector and all other sectors joined in the steep fall. Although India has lost huge market capitalisation it has provided a big opportunity to investors with negligible equity allocation.

  1. Foreign Fund Outflows

Foreign Institutional Investors (FIIs) remained net sellers in the capital market, and sold shares worth approximately Rs. 3,127 crore of Thursday.

FIIs sold shares worth Rs. 1,161 on Monday, Rs. 2,315 on Tuesday and Rs. 3,337 on Wednesday.

  1. Global Markets

The fall in domestic markets was driven by US, Asian and European indices that fell about 3 to 4 percent on the back of several coronavirus cases outside China.

The Dow Jones fell more than 12 percent in six consecutive sessions. European stocks also ended lower with a drop of 3.6 percent with fears of the virus weighing down heavily on market investors.

Amongst the Asian counterparts, Shanghai Composite, Japan’s Nikkei, Hong Kong’s Hang Seng, South Korea’s Kospi and Australia’s ASX 200 were all down 3 to 4.5 percent.

As per Vinod Nair who is Heading of Research at Geojit Financial Services, the increase in new virus cases is diluting investor wealth across the globe. Domestically, broad-based selling was witnessed with sectors that have global exposure like Metals & IT being impacted the most. He is of the opinion that the market is yet to quantify the exact economic impact of the on-going virus concerns but further acceleration could be risky in short to medium term.

  1. GDP Data

The GDP data is scheduled to be released later in the day and Dalal Street was expected to trade highly volatile as participants will watch the third quarter GDP data.

The general estimate by experts suggests that India’s economy is growing at about 4.7 percent from the December quarter of last year.

  1. Oil Prices

The fall in oil prices continued to deepen for the sixth straight session and recorded a 12 percent decline for the week which is the biggest in four years.

Crude oil prices are trading close to USD 50 per barrel which might be good for Indian markets but represents global growth outlook which is very bleak.

To know more about how this affects your investments, schedule a call with one of our SEBI registered Investment Advisors.