Sensex crashes 3,935 points: What's behind market meltdown

Analysts say India has reached a crucial phase where it can either go China or Italy’s way.

Sensex hits 10% lower circuit; market-wide trading halted
NEW DELHI: India is virtually under lockdown, manufacturing companies are announcing shutdowns and domestic stocks are falling like a deck of cards.

Benchmark indices logged their worst day in history. Nifty slipped to a four year low at 7,610.25, down 1,135 points while Sensex plummeted 3935 points to 25,981, over three-year lows.

Analysts say India has reached a crucial phase where it can either go China or Italy’s way. Already a spurt in coronavirus toll in Europe and the US has rattled markets across Wall Street to Dalal Street. Curbs Sebi imposed in cash and F&O segments of the market may prove insufficient to tame volatility. Only a fall in coronavirus cases can save the Dalal Street from a further beating, analysts said.


Here are key factors behind the fresh market selloff:

India under lockdown, cos announce shutdown
Andhra Pradesh, Telangana, Punjab, Uttarakhand, Jharkhand, Jammu and Kashmir and Chandigarh are among the states and Union territories that have been completely brought under lockdown on Sunday till March 31. Leading automakers such as Maruti Suzuki India and Mahindra & Mahindra have announced suspension of manufacturing activities across plants. Two-wheeler maker Hero MotoCorp has also suspended production across all manufacturing plants. Electronics maker LG said it will shut down of two of its plants in India. There are fears that more such shutdowns would bring the economic activity to a halt.

US futures, Asian shares take a beating
E-Mini futures for the S&P500 dived 5 per cent in the opening trades. The US has seen a significant spike in coronavirus cases with the total confirmed infections jumping to nearly 34,000 while over 400 fatalities were recorded, even as one in every three Americans has been told to stay home. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan lost 2 per cent, with South Korea badly hit. The commodity-heavy Australian market shed 5 per cent.

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Delays in trillion dollar US stimulus
US Senate stopped a $1 trillion-plus coronavirus response bill from advancing on Sunday, but talks continued over Democrats' demands for more funding for medical care and state and local efforts to combat the pandemic, Reuters reported. The measure failed to get the necessary 60 votes in the 100-member chamber to clear a procedural hurdle after days of negotiations, with 47 senators voting in favor and 47 opposed.

Rupee hits 76 a dollar level, FII selling may intensify
The domestic currency dropped to 76 level against the US dollar in Monday’s trade, raising fears of further foreign outflows. Already FPIs have pulled out over Rs 50,000 crore domestic equities in roughly two weeks.

“The reaction function of the central bank would be interesting to watch given that there is broad dollar strength. Another 2 per cent runaway move in USD-INR pair is on the cards in the absence of RBI intervention. Technical factors suggest the current bullish momentum to continue targeting 76 plus levels,” said IFA Global said in a note.

Sebi curbs unlikely to lower volatility
After trading hours on Friday, the Sebi introduced additional measures to tamp down wild fluctuations by introducing some restrictions in stocks futures and options trading. However, money managers believe that it won't curb volatility entirely. "Sebi's move to tighten short selling rules will affect a limited number of stocks at most, it will reduce volatility but not entirely. It is not a game changer in preventing short selling," said IIFL’s Ayon Mukhopadhyay told ET.

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India to decide: China or Italy
“India is at that crucial stage where European countries have not been able to control the virus," said Ayon Mukhopadhyay, director, UK and Europe at IIFL Institutional Equities. The coronavirus (Covid-19) positive cases surged in India on Sunday to 396 -- the highest increase of 81 over 24 hours so far. India also has to contend with the problem of high population density. There are 455 people per sq km, compared with 148 in China, 205 in Italy and 50 in Iran, according to the World Bank.

Technical charts show grim outlook
Technical charts were already showing a grim picture and weakness in global indices only intensified the selloff. “On Monday, the 8,810 and 8,890 levels are likely to act as key resistance for Nifty, while supports will come in much lower at 8,250 and 7,800 levels. Just like what is happening over the past couple of days, any downside momentum will see a wider-than-usual trading range in the market,” said Milan Vaishnav of Gemstone Equity Research & Advisory Services.
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