Mirroring the sharp sell-off in global markets, Indian equities crashed on Monday, as investors turned jittery and booked profits even as novel coronavirus cases continued to rise amid economic uncertainty. The Sensex dived 811.68 points to close at 38,034.14 while the Nifty plunged 254.4 points to close at 11,250.4.
The rally in the markets in the last few months was triggered by loose monetary policies adopted by central banks of developed countries. This led to a sharp disconnect between markets and the economy at large. The uncertainty around an additional fiscal stimulus in the US failed to enthuse investors who resorted to book profits.
So far in September, buying by foreign portfolio investors (FPIs) into Indian equities has slowed down, with the total buying standing at $563.03 million. The FPI buying has, however, continued for the fifth straight month. The rupee appreciated by 7 paise against the dollar to close at 73.38.
UR Bhat, director, Dalton Capital Advisors (India), said: “Whether the current market correction is a one-off or of a longer duration depends on how the scenario will shape up. If this is a precursor to another lockdown globally or in India, then the markets could see a longer-time correction. If not, there are some initial signs of recovery and continuing fiscal stimulus, which could make this correction a one-off event.”
The resurgence of Covid-19 cases in Europe added to the worries as it dampened the sentiment behind a possible quick economic recovery. Many European countries on Friday introduced a new set of restrictions to curb rising cases of novel coronavirus. The UK is considering a new national lockdown.
European indices in Germany, France and the UK tanked between 3.1% and 3.5%. Asian markets also closed in losses with Hong Kong’s Hang Seng declining 2.06%.
Sorbh Gupta, associate fund manager, Quantum Mutual Fund, said, “The markets are not factoring in a second round of lockdown. If that happens, a correction will definitely take place. There is still some uncertainty around Covid-19, but if participants have some money to deploy, then they should use corrections such as these as a buying opportunity to create a long-term equity portfolio.”
Equities on Monday saw deep cuts in all sectoral indices as well as the broader markets, with the Nifty Midcap and Nifty Smallcap declining by 4.06% and 4.17%. Global-facing stocks such as metal and automobile stocks, along with banks, remained under pressure.
Despite this, market experts are betting on the improving economic indicators and have stated that the markets will not react unless the economic indicators do. Bhat said, “The market reacts to economic indicators and we can see some modest improvement in auto sales, petroleum consumption, GST collections, among others. In the event of an adverse impact on such economic indicators, the markets will react negatively.”
The markets witnessed strong volumes, data from the NSE show.
The turnover in the futures and options segment stood at Rs 18.07 lakh crore, against the six-month average of Rs 15.52 lakh crore. The cash market segment saw a turnover worth Rs 64,211.23 crore, against the six-month average of Rs 53,128 crore.
Major losers on the Nifty were IndusInd Bank, Tata Motors, Hindalco, Tata Steel and JSW Steel, which were down by 8.5%, 7.8% 7.24%, 6.06%, and 6.05%, respectively. Only gainers were TCS, Infosys and Kotak Mahindra Bank, up by 0.7%, 0.48%, and 0.37%, respectively.