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Last Updated : Mar 06, 2020 04:05 PM IST | Source: Moneycontrol.com

Nifty breaks below 11K, Sensex plunges nearly 900 pts; 5 factors at play

"India has been in a bear market for some time now. Broader market is hurting since 2018," Market veteran Shankar Sharma said.

Sunil Shankar Matkar
 
 
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Market caught in bear trap on March 6 with Nifty breaching crucial support of 11,000. The benchmark indices were also in a downtrend this week.

At close, the BSE Sensex was down 893.99 points or 2.32 percent at 37,576.62, and the Nifty50 fell 279.50 points or 2.48 percent to 10,989.50.

The broader markets also declined in line with benchmarks as the Nifty Midcap and Smallcap indices corrected 2.4 percent and 2.5 percent respectively.

Close

The market breadth was largely in favour of bears as about 4 shares declined for every share rising on the BSE.

"India has been in a bear market for some time now. Broader market is hurting since 2018," Market veteran Shankar Sharma told CNBC-TV18.

Five Factors that weighed on the market:

Yes Bank tanks

Shares of Yes Bank crashed 85 percent intraday after the Reserve Bank of India took over the control of the board. It also said the cash withdrawal limit is capped at Rs 50,000 for depositors, barring emergency cases. But the stock saw some recovery, closing 56.04 percent down at Rs 16.20.

The Central Bank imposed a moratorium of one month and expects to announce credible restructuring plan in the next few days.

"The Reserve Bank assures the depositors of the bank that their interests will be fully protected and there is no need to panic," the RBI said in its statement released late Thursday.

Yesterday reports indicated that SBI and LIC might take the control of board soon by acquiring 24.5 percent stake each in the bank.

Further, the brokerages remained bearish on the stock with JP Morgan slashed its target on the stock to Re 1 (from Rs 55 earlier) and retained underweight call after the stake sale buzz, saying the bank required high amount of recapitalisation to retain the business.

Rating agency Moody's said the Reserve Bank on India's moratorium and withdrawal cap on Yes Bank was credit negative, and the lack of coordinated action action highlights continued uncertainty around bank resolutions.

Also the National Stock Exchange acted quickly after such breaking news, saying all futures & options contracts of Yes Bank will not be traded after May, which added pressure on the stock.

Nippon Life India Asset Management Company, also in its note to investors, has said it has marked down the value of Yes Bank to zero and restricted the subscription limit to Rs 2 lakh per investor in the schemes that have exposure to the private lenders' bond.

Nippon AMC took the decision due to the lack of information and understanding on how regulations and decisions of the RBI and the government will pan out for Yes Bank.

The bank has been finding it hard to raise Rs 14,000 crore in fresh capital for several months now.

All Sectoral Indices Under Pressure including Bank Nifty

Bank Nifty crashed over 3.5 percent after the surprised and quick action on Yes Bank taken by the Reserve Bank of India to resolve the issue.

Country's largest lender State Bank of India fell more than 6 percent. RBL Bank was the second biggest loser in the Bank Nifty, falling around 14 percent.

Among others, Nifty Auto, FMCG, IT, Metal, Pharma, and Realty indices were down 1-4 percent.

Coronavirus Threat Looms Large

The coronavirus cases outside of China has been increasing very fast, entering into US, Europe, Middle East etc, which made investors more worried about global growth going ahead.

Lot of companies including Facebook asking their employees to stay at home and work. Globally infected cases crossed 98,000 with the death toll increased to around 3,300.

South Korea (over 6,000 cases), Italy (over 3,800) and Iran (over 3,500 cases) reported highest infected cases outside of China, while it has been increasing in United States and other parts of Europe as well.

Most worried part is if the virus spread to countries where medical facilities are not that strong as it is in developed regions then there could be more global growth slowdown in coming months, experts feel.

In fact, many companies started cutting earnings/revenue forecast for current financial year and current quarter, including WEX, Starbucks, Visa etc.

Several hotels and companies started working as usual but people still preferred to stay away, while several countries stopped travelling to infected countries like South Korea, Japan, China, Italy, Iran etc.

Aviation industry organisation International Air Transport Association (IATA) has increased its estimates of the industry's losses due to the coronavirus outbreak, now putting the possible damage at up to $113 billion.

Global Markets Worried on Coronavirus

Globally all markets fell sharply with Japan's Nikkei falling 2.7 percent and Australia's ASX 200 2.8 percent, followed by Hong Kong's Hang Seng and South Korea's Kospi which dropped over 2 percent. It was after Dow Jones on Thursday fell more than 950 points.

However, the loss in China's Shanghai Composite was limited to 1.2 percent against other Asian counterparts could be due to fall in new infected cases and death.

The fall in markets was despite the capital infusion and rate cuts by global central banks or finance ministries to support the economy from coronavirus.

The global rating agency said a fast spreading coronavirus outbreak could knock $211 billion off the combined economies of the Asia-Pacific, with Japan, Hong Kong, Singapore and Australia among the most exposed.

S&P cut its 2020 growth forecast for China to 4.8 percent from previous estimate of 5.7 percent. It forecast Australian growth to slow sharply to 1.2 percent from an already below-trend 2.2 percent in 2019. Japan would take 0.5 percentage point hit and Korea a 1 percentage point knock.

Technical View

Finally the Nifty50 has broken its four-day consolidation range of 11,030-11,433 in southward direction on Friday and closed below psychological 11,000 mark, but formed bullish candle on daily charts as closing was higher than opening levels.

The weakness after four-day rangebound trade indicated that the index may remain in control of bears, though there was recovery from day's low of around 10,800 which could be crucial support going forward considering the past downfalls, experts feel.

"Going ahead, despite elevated global volatility, we expect supportive efforts to emerge in the range of 10,900-10,600. Empirically, over the past decade, secondary corrections to the tune of 15 percent within the framework of a structural bull market is considered as a normal bull market correction, offering a favourable risk reward," said ICICI Direct.

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First Published on Mar 6, 2020 12:03 pm
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