Domestic stock markets crashed on Monday and benchmark indices S&P BSE Sensex and NSE Nifty50 fell sharply. At 10:40 am, Sensex was down over 1,000 points and Nifty was struggling to remain above 14,300.
Shares of companies from various sectors have been trading in the red after today’s market opening. There are several reasons behind the weakness observed in the market including the rapid surge of coronavirus cases in the country.
Here are four reasons behind today' stock market crash:
COVID-19 CRISIS
India is in the middle of another Covid-19 crisis. The second wave of the pandemic has hit the country with deadlier force as active cases have shot up alarmingly and the daily caseload is rising much faster than 2020. On Monday, India reported 2.73 lakh Covid-19 cases and 1,619 fatalities.
Investors are worried about the pace of India’s economic recovery as cases continue to rise rapidly. The sharp rise in cases has forced states to expand coronavirus curbs, which have ultimately impacted businesses across several sectors.
VOLATILITY ON THE RISE
Domestic markets are witnessing a surge in volatility due to the current Covid-19 situation. Markets have turned volatile as India continues to report over 2 lakh Covid-19 cases for the past few days.
Experts indicate that volatility could increase further this week if the situation continues to worsen, resulting in a deeper market correction. At the time of writing this article, India VIX — the gauge to measure market volatility — was up 9.73 per cent. This is an indication that the markets are worried about the sharp rise in Covid-19 cases as it could negatively impact economic activity.
COVID-19 RESTRICTIONS
Most states have started expanding Covid-19 restrictions. Delhi has announced a week-long curfew today till next Monday, while Maharashtra had already announced s strict curfew earlier. Other states have also made restrictions stricter.
The lack of business activity could put severe pressure on lakhs of businesses and hurt the economy. The developments have worried investors who are wary about making any new bets in the wake of rising restrictions.
If small businesses suffer due to the restrictions, it could directly impact key sectors like financials and banking. Small businesses may be unable to fulfil repayment obligations if they are unable to generate adequate profit from businesses.
It may be noted that state-owned banks led the declines among sectors as it dropped over 5 per cent at open, on track for its third straight session of losses. This is why the banking sector witnessed the biggest drop in the stock market today. Private banks also fell over four per cent.
GROWTH DOWNGRADE
Many brokerage houses which had predicted an impressive economic growth for India in FY22 have downgraded their forecast in the wake of the second wave. This has amplified negative sentiment among investors who are worried about the impact of the second wave on the economy.
The second Covid-19 wave has already overwhelmed the healthcare system and is gradually derailing economic recovery as more state governments continue to extend Covid-related curbs. Nomura, JP Morgan and UBS are some brokerage houses that have lowered their GDP forecast for India.