Sensex, Nifty skid over 3% each; top 4 factors behind the fall

Indian shares suffered big losses in the morning trade on May 18, with the Sensex falling over 800 points and the Nifty slipping below 8,900.

If the market ends in the red, this will be the third consecutive day of losses for Indian equities.

At 1010 hours, the Sensex was 663 points, or 2.13 percent, down at 30,434, while Nifty was at 8,934, slipping 203 points, or 2.22 percent.

In sync with the benchmarks, BSE Midcap and Smallcap indices were down about 2 percent each.

All sectoral indices were in the red, with the BSE Bankex and Finance falling up to 5 percent.

"Markets were hoping for big-bang government stimulus measures to boost demand and the eventual peaking of virus infections. Both of these have not happened. Stimulus measures have not enthused markets, while lockdown had been extended again due to rising infections. This, in addition to the insolvency procedures announced by the FM yesterday, could lead to an increase in NPAs for banks, which are the worst affected today," said Sony Mathews, Senior Market Strategist at Geojit Financial Services, on May 18.

Here are the top 4 factors roiling the market.

Stimulus disappoints

On May 12, Prime Minister Narendra Modi in his address to the nation at 8 pm announced a Rs 20-lakh-crore stimulus package to combat the economic fallout of the coronavirus that boosted sentiment, helping the Sensex close over 2 percent higher the next day.

But the sentiment reversed after May 13, when Finance Minister Nirmala Sitharaman started unveiling the details of the stimulus. The market has since been in the red.

Experts and market analysts said while the measures announced by the government are long-term positives, there is no immediate trigger for the market to move upward.

"The market was already weak due to the absence of any positive news flow in the stimulus package. During the weekend, the announcements further dampened the mood and the Sensex saw the breakdown of the last week's low. We expect weakness to continue till 29,900 levels," said Vikas Jain, Senior Research Analyst at Reliance Securities.

Sharp fall in financial stocks

Most banks and financial stocks suffered strong losses as investors feared that the suspension of Insolvency and Bankruptcy Code (IBC) for a year may put banks at more risk.

On May 17, one of the most important announcements made by Sitharaman was the ease of doing business through IBC-related measures, which included suspension of fresh insolvency proceedings up to one year, depending on the pandemic situation.

Along with that, there is an exclusion of COVID-19 related debt and defaults. The steps seem to be good for the corporates but experts say it is unfair for the aggrieved party and can create unscrupulous borrowers that can defeat the purpose of IBC.

In fact, it can increase debt levels at banks that are already under pressure, the public sector leaders.

"Suspending IBC for one year may not be a good idea as there may be unscrupulous borrowers/promoters. Instead, each bank could have been directed to form a committee, which could decide whether to initiate any legal action or not under IBC, depending upon the credentials and performance of the borrower as well as putting a reasoned note whether the default is attributable to COVID-19 situation," said Rajesh Narain Gupta, Managing Partner, SNG & Partners.

Lockdown 4.0

India started Phase 4 of the lockdown on May 18. It has been 55 days that 1.3 billion people have been asked to stay in to stonewall the coronavirus.

The new round of lockdown that ends May 31 comes with fewer restrictions, with the Centre giving states a bigger say in deciding the guidelines. Analysts are of the view that this, too, has dampened the mood as the worries that the coronavirus-led economic crisis will linger for a long time remain unabated.

Rising infections

India, has, so far, confirmed 96,169 coronavirus cases, with Maharashtra, Gujarat, Tamil Nadu and Delhi reporting the highest number of infections. The death toll from the outbreak in India is at 3,029.

With infections rising at a pace, 1-lakh mark doesn’t seem to be too far.

"Disappointing package announcements with a large spike in new cases that are bringing positivity rate abound 5 percent," said Sameer Kalra, Founder, Target Investing.

Date: May 19