The Indian equity market suffered huge losses in intraday trade on April 12 as the benchmark Sensex cracked 1,898 points and the Nifty nosedived to below 14,250, leaving the bulls to lick their wounds.
The widespread selloff was observed from the word go as investors remained worried about the economic fallout of the fresh surge in coronavirus cases and the subsequent restrictions announced by several state governments.
The Sensex closed with a loss of 1,708 points, or 3.44 percent, down at 47,883.38 while Nifty settled 524 points, or 3.53 percent, lower at 14,310.80.
Mid and small-caps suffered more as the BSE Midcap index plunged 5.32 percent and the Smallcap index 4.81 percent.
Among the sectors, the BSE Realty fell 7.70 percent, followed by industrials (down 5.93 percent), metal (down 5.65 percent), basic materials (down 5.28 percent), auto (down 5.15 percent), power (down 5.07 percent) and finance (down 5 percent).
The overall market capitalisation of BSE-listed firms fell to Rs 200.9 lakh crore from Rs 209.6 lakh crore in the previous session on April 9, making investors poorer by Rs 8.7 lakh crore in a single day.
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Here are 5 big reasons that seem to have triggered the selloff:
1. Surging COVID-19 cases
COVID-19 cases have been surging and touching a new high almost every day, forcing several state governments to impose fresh restrictions. Market participants are worried that a complete lockdown will derail the pace of nascent economic recovery.
As many as 1,68,912 more people tested positive for COVID-19 across the country in the last 24 hours, taking the cumulative caseload to 1,35,27,717, the Union health ministry said on April 12 morning.
"Since the second wave of the pandemic is turning out worse than expected, there is profound uncertainty about its impact on the economy and markets. Since the situation is the worst in economically significant Maharashtra, this can impact the market's assumption of around 11 percent GDP growth and above 30 percent earnings growth," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
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2 Rupee's weakness against dollar
The Indian rupee plunged below 75 against the US dollar today to an eight-month low. The Indian currency ended 31 paise lower at 75.05 per dollar on April 12.
The RBI policy of providing even more liquidity to the system through the GSAP, though positive for the bond market (where yields have softened by 5-8 bps) is not so for the currency.
There is now excess liquidity of Rs 7 lakh crore in the reverse repo basket and there will be an infusion of Rs 25,000 crore on the 15th of this month. So much liquidity in the system is not good news for the rupee.
3. Sluggish pace of vaccination
At the moment, when COVID-19 cases are rising exponentially, reports of vaccine shortage and the sluggish pace of vaccination added to the worry that the pandemic may cause more damage than expected.
However, the stocks have been replenished at most places and vaccination drive is picking pace.
A PTI report said with the fresh stock of anti- COVID 19 vaccines being made available by the Mumbai civic body, the vaccination drive will resume at 62 of the 71 designated private hospitals in the megapolis from April 12.
India has become the fastest country to administer over 100 million doses of COVID-19 vaccines in record 85 days, the health ministry announced on April 10.
4. Caution ahead of Q4 numbers
Investors are also waiting to see if the March quarter numbers meet their expectations. After two consecutive quarters of strong earnings, the March quarter earnings are expected to come healthy. However, this quarter will unveil the real picture of the asset quality of banking heavyweights, while it will also show how much damage COVID-19 did in the last month of the quarter.
Read more: Can COVID-19 puncture the hopes of a strong quarter?
5. Technical factor
Last week, the Nifty formed a Doji candle pattern on a weekly chart, which represents indecision in the markets.
Ajit Mishra, VP Research, Religare Broking, said the market has been hovering in a range for the last two months and the recent movement is not giving any cue over the next directional move.
"The continued weakness in banking stocks, due to increased fear of a spike in NPAs, is limiting upside despite the strong performance from the other sectoral pack so the alignment between the benchmark and banking index is critical else the consolidation will continue," said Mishra.
Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments, underscored that the resistance of 14,950-15,000 has worked once again.
"The markets have taken a severe U-turn and have tested the 14,300-14,400 support. For the markets to move up, we need to respect this support range and bounce up. The level of 14,264 was the recent low recorded and if we break that, the next expected level is 13,900," he said.
Ashis Biswas, Head of Technical Research at CapitalVia Global Research said while recovery above 14,500 is the key to change the short-term bearish outlook, sustaining below this level market to gain downside momentum and open the gate for a movement until 14,010.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.