Global sell-off, re-lockdown fear: 5 reasons why Sensex slipped 1066 pts

Markets ended over 2.5 per cent lower on Thursday – snapping a 10-day rally – with the S&P BSE Sensex slipping 1,066 points to end the day at 39,728 levels. On the other hand, the Nifty50 index lost 291 points to settle at 11,680 levels. Besides, weakness in global markets due to renewed restrictions in European countries to stem the possible second wave of coronavirus (Covid-19) turned Dalal Street into a sea of red.

In the intra-day deals, the benchmark S&P BSE Sensex tumbled 1,127 points, or 2.7 per cent, at 39,684 levels. The broader Nifty50 had plummeted 310 points or 2.5 per cent to hit a low of 11,661 levels before recovering a bit.

"Indian markets opened marginally negative following negative cues in Asian markets, as global markets remained non-committal amid stimulus concerns. The selling intensified during the day and was largely on account of negative news coming from European markets. Rising incidence of Covid-19 cases have led to a fresh round of lockdowns being implemented in some cities across Europe. Traders seemed to take note of the rising Covid-19 cases and booked profit in fear of the likely dent in economic recovery as a result of re-imposition of the lockdown across major global cities," said Narendra Solanki, head of fundamental equity research at Anand Rathi Shares & Stock Brokers.

Here are the top triggers for today’s correction:

US stimulus: Wall Street finished weaker on Wednesday as investors lost hope that a US fiscal stimulus would be approved before the presidential election in November. Downbeat comments from Treasury Secretary Steven Mnuchin that a deal would not likely be made before the vote added uncertainty to the markets. The development had triggered a negative reaction in the Indian markets when they opened for trade on Thursday.

“At this point getting something done before the election and executing on that would be difficult, just given where we are and the level of detail, but we’re going to try to continue to work through these issues,” Mnuchin said at an event on Wednesday.

During Wednesday’s overnight trading session, the Dow Jones fell 0.58 per cent, the S&P 500 lost 0.66 per cent, and the Nasdaq Composite dropped 0.80 per cent. Meanwhile, Dow Jones Futures were down 257 points at 2:50 pm on Thursday, indicating extension of losses on Wall Street.

Covid-19 restrictions in Europe: European leaders scrambled to contain the second wave of coronavirus in the region, imposing sweeping restrictions and shutdowns. On Wednesday, French President Emmanuel Macron declared a public health state of emergency and said that nine of the country’s largest cities, including Paris, will have to abide by a curfew from 9 pm to 6 am, starting Saturday for four weeks. Besides, German Chancellor Angela Markel has given states free-hand to decide their own strategy to curb rising cases.

Stocks in Europe fell for a third consecutive session in early trading. The pan-European STOXX 600 was down 1.7 per cent to a near two-week low, with markets in London and Paris lower 1.4 per cent-1.7 per cent and Frankfurt and Milan  2 per cent-2.5 per cent weaker.

Asian markets sell-off: Investors across Asia-Pacific pressed the panic sell-off button as accelerating Covid-19 cases across US and EU, in the absence of any vaccine, and delay in US stimulus package dimmed recovery hopes. Japan’s Nikkei ended half a per cent lower while Asia Dow dipped 1.6 per cent. Hong Kong's Hang Seng, meanwhile, sank little over 2 per cent.

India’s fiscal position weak: Credit rating agency Moody's Investors Service said on Thursday that India's fiscal position "remains very weak". The government's latest fiscal measures, it said, will have a minimal impact on the country's growth prospects and that the government's 'small scale' package is actually a credit negative as it reflects the country's 'limited budgetary firepower to support the economy'. READ MORE

Moody's expects India's GDP to drop 11.5 per cent in 2020-21, so the 0.5 per cent of GDP gain expected by the government from these stimulus measures will provide only 'a small boost', it pointed out.

Profit Booking: Investors booked profits on the back of a 10-day rally clocked by benchmark indices till Wednesday. In the past ten trading sessions, the benchmark Sensex and Nifty have jumped 7 per cent each, ACE Equity data show. Sectorally, Nifty IT index dropped nearly 4 per cent in intra-day trade. The BSE IT index slipped 5 per cent from its record high level of 22,808 touched in the early morning today. Thus far in the financial year 2020-21, the IT index has outperformed the market by surging 74 per cent, as compared to a 38 per cent rise in the S&P BSE Sensex during this period. READ MORE