The crash in oil prices on Monday sent shockwaves through global equity markets, which were already reeling from pressure because of the spread of coronavirus.
Overseas investors pulled out close to $1 billion, taking their one-month pull out close to $4 billion.
At one point, the Sensex was down 2,467 points, or 6.6 per cent. After intense selling through the day, the Sensex ended 1,942 points, or 5.2 per cent, lower at 35,635, the lowest close since February last year.
The widely-tracked Nifty dropped 541 points, or 5 per cent, to close at 10,448.
The epicentre of the crash was a 30 per cent slump in global crude prices following a price war launched by Saudi Arabia. Brent crude fell below $34 a barrel, raising fresh fears of a global recession.
The oil price drop triggered an unprecedented pull-out from risky assets. Investors moved to safe havens like bonds and gold. The yield on the 10-year government security dropped 12 basis points to 6.06 per cent. The US 10-year Treasury slipped below 0.5 per cent, which, investors said, was a sign of “extreme anxiety”.
The financial market performance on Monday was akin to the 2008 global financial crisis, said market players.
Typically, a sharp fall in prices of oil as well as bonds is positive for the domestic economy.
However, market players say as the latest fall is due to fears of recession, asset prices may decline.
“A fall in oil prices is good for India when it happens in isolation. Today, there is a global crisis akin to 2008 — India was a far stronger economy in 2008, when the global financial crisis hit. But we are now unprepared to withstand a crisis of this kind, given the fragile economic situation,” said Shankar Sharma, founder, First Global.
Saurabh Mukherjea, founder, Marcellus Investments, said: “Over the last 20 years, there is a positive correlation between the Indian markets and oil prices. When oil prices fall, global markets fall simultaneously, as it leads to drying up of foreign fund flows.”
The domestic markets, which touched record highs less than two months ago, are on the cusp of a bear conditions. After Monday’s rout, the benchmark Sensex and the Nifty are down15 per cent from their highs in mid-January.
Market players say the oil price drop, coupled with issues such as coronavirus spread and turmoil in the domestic financial sector, has soured investor mood.
While shares of YES Bank rebounded sharply on Monday following the State Bank of India-led rescue package, investors are worried about a possible spillover, say experts. Moreover, coronavirus fears continued to play on the markets with the number of cases crossing 100,000 and the death toll nearing 4,000.
All sectoral indices of the BSE and Sensex components ended with losses on Monday.
The biggest drag on market performance was Reliance Industries (RIL), which fell 12.4 per cent, the highest in over a decade.
The stock, bruised by a fall in crude oil prices, accounted for 472 of 1,942-point decline in the Sensex. Shares of ONGC fell 16.3 per cent and IndusInd Bank 11 cent.
Investor wealth of nearly Rs 6.84 trillion was eroded in Monday’s fall. RIL’s market cap fell by Rs 1 trillion.
Overall, 2,231 stocks declined, and 327 advanced on the BSE.
Domestic institutional investors bought shares worth Rs 4,974 crore, helping partially offset overseas investors selling of Rs 6,596 crore.