Sensex crashes nearly 700 pts: Factors that scared D-Street bulls on Monday

After a modest recovery on Friday when the S&P BSE Sensex ended 100 points higher, the markets resumed their downward trajectory on Monday with both the benchmark indices, S&P BSE Sensex and Nifty50, tumbling nearly two per cent in the early morning deals. Heavy selling was witnessed across-the-board with India VIX, the volatility gauge, jumping nearly 14 per cent to hit a one-month high of 17.64. Barring information technology (IT), all the sectoral indices were trading with deep cuts.

The S&P BSE Sensex tanked as much as 675 points, or 1.81 per cent, to hit a low of 36,443.41 during the trade. The Nifty50 index, too, nosedived 1.89 per cent to hit a low of 10,788.60 levels. However, the indices pared some losses at the end of the session. The S&P BSE Sensex ended 418 points or 1.13 per cent lower at 36,700 levels while NSE's Nifty50 index closed at 10,863, down 135 points or 1.23 per cent. 

Here's a look at the top factors that dragged the market lower on Monday:

Developments in Jammu & Kashmir (J&K): Investors pressed the panic button after developments in Kashmir took centre-stage on Monday, after regional leaders said they feared being arrested and Indian officials imposed restrictions in Srinagar and suspended mobile data services in parts of the state. Home Minister Amit Shah in the Parliament today moved a resolution to abrogate all the provisions under Article 370 and proposed a new bill for the reorganisation of Jammu & Kashmir. 

Article 370 grants an autonomous status to J&K, while Article 35A, incorporated into the Constitution in 1954, provides special rights and privileges to the citizens of the state. READ MORE

That apart, Pakistan's Prime Minister Imran Khan on Sunday asked the US to mediate between India and Pakistan over Kashmir issue, saying the tensions between the two countries have the potential to become a regional crisis and it was the right time for US President Donald Trump to mediate, Reuters reported.

Weak global cues: Asian shares suffered their steepest daily drop in nine months on Monday on Sino-US trade friction. Markets have been badly spooked since US President Donald Trump abruptly declared he would slap 10 per cent tariffs on $300 billion in Chinese imports, ending a month-long trade truce. China vowed on Friday to fight back.

"The trade dispute between the world’s two largest economies has already disrupted global supply chains and investment. The abrupt escalation capped a critical week for global markets after the US Federal Reserve delivered a widely anticipated interest rate cut and played down expectations of further easing," said a Reuters report.

Sustained foreign outflows: A couple of unfriendly proposals in the Budget has upset foreign investors. As per the latest data, foreign investors (FPIs) have withdrawn a net amount of Rs 2,881 crore from the Indian capital markets in the first two sessions of August on account of domestic as well as global headwinds. FPIs were net buyers in the Indian capital markets in the first half of 2019, barring January. However, the trend reversed in July after the announcement of higher tax on FPIs registered as trusts and association of persons in the Union Budget for 2019-20, experts said.

Weak corporate earnings: Corporate earnings, too, have failed to lift market sentiment that soured post the Budget proposals on July 5. That apart, markets now await the outcome of the two-day Monetary Policy Committee meeting scheduled for August 7. Most experts expect the Reserve Bank of India (RBI) to slash rates by 25 basis points (bps) amid a slowing economy and falling consumption. READ MORE