Why market crashed: It's not just coronavirus, there's more to it

Domestic benchmark indices posted their second-biggest point-wise decline on Friday as investors and traders fretted over the fast-spreading coronavirus and its impact on global economic growth.

The BSE flagship index Sensex plunged 1,448 points or 3.64 per cent to 38,297 while its NSE counterpart Nifty ended the day at 11,219, down 414 points or 3.56 per cent.

India VIX, the barometer of fear in the markets, spiked 28.75 per cent to 22.87.


Here are the top factors that dragged the indices:

Coronavirus reaches six continents
Coronavirus that reached shores of all six habitable continents in the world was the biggest factor spooking investors on Dalal Street. Even though China has seen a fall in the number of new cases, other countries are seeing a rapid growth in infections as well as deaths.

A Reuters tally showed that about 10 countries reported their first virus cases in the past 24 hours, including Nigeria, the most populous country in Africa and the first case in sub-Saharan Africa.

Number of cases in South Korea crossed above 2,000. On the other hand, the death toll in Iran from coronavirus had risen to 26, by far the highest number outside China.

US indices see record fall
Crash in the US markets overnight also dampened the sentiments on the Street. The S&P 500 finished 12 per cent below its February 19 record close, marking its fastest correction ever in just six trading days.

The Dow, down 1,190 points, registered a record one-day points drop, which was also its fourth 1,000-point decline in history and the second this week.

Asian markets also mimicked their western peers. Japan's Nikkei slumped 4 per cent. MSCI all country world index fell 0.5 per cent after 3.3 per cent drop on Thursday. So far this week, it has lost 9.3 per cent, on course for its biggest weekly decline since a 9.8 per cent plunge in November 2008.

GDP growth likely to flatline
Some cautiousness also crept in among market participants after economists said that gross domestic product (GDP) growth rate is likely to be flat in the third quarter. The government will release GDP data later in the day.

State Bank of India said the growth will likely stay flat at 4.5 per cent in the October-December 2019. It also said that India faces the risk of getting impacted by the coronavirus epidemic economically because of its high reliance on Chinese imports for various goods.

ICICI Bank in a report said that GDP growth is expected to print around 4.7 per cent year-on-year.

FPIs offload Rs 10,000 crore in four days
Foreign portfolio investors offloaded shares worth Rs 3,127.36 crore on Thursday, taking their total sales to nearly Rs 10,000 crore in the past four days. Money managers believe that domestic stocks will continue to see outflows if the global market rout does not end, even though the country has been relatively unaffected by the outbreak.


Technical outlook weak
Fearful headlines continued to make life difficult for the bulls and Nifty formed a ‘Hammer’ candle pattern closing at 11,633. Although analysts expected that level to provide some support, they also warned the index could slide if it fails to hold the level.

“We expect Indian indices to continue correction with Bank Nifty on the receiving end. Ratio of Bank Nifty versus Nifty is hovering near important resistance of 2.60-2.61; hence, follow-up action in the Bank Nifty needs to be closely watched as sustenance below 30,000 could drag Bank Nifty towards month’s lowest level (i.e. 29,613),” analysts from YES Securities said.