Explainer: Why Sensex crashed 1,708 points amid spike in COVID cases

The stock market fall is directly proportional to the massive rise in COVID cases, especially in Maharashtra. Here’s looking at what’s happening and what could lie ahead

Investor wealth plummeted by nearly Rs 8 trillion within minutes on April 12.

Indian markets have crashed following a similar trend in other major Asian bourses. Nikkei in Japan, Hang Seng in Hong Kong and the Shanghai Composite in China fell between 0.5 per cent and 1 per cent on Monday (April 12). With several states mulling over a stricter lockdown, the markets are concerned over the impact on economic activity and GDP growth for the current financial year.

Equity benchmark Sensex plummeted 1,708 points following an across-the-board selloff. The 30-share BSE index sank 1,707.94 points or 3.44 per cent to end at 47,883.38.

Similarly, the broader NSE Nifty plunged 524.05 points or 3.53 per cent to finish at 14,310.80.

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Also read: Economy emerges out of recession, GDP grows 0.4% in Q3

What are the Fears?

A key reason is the likelihood of a lockdown in Maharashtra, which makes for 14.5 per cent of the country’s overall GDP. Investors are worried that a strict lockdown in the state would severely affect recouping of the country’s economy. The investor fear is visible as the two main indexes, Sensex and Nifty, have retreated 6 per cent to 8 per cent from their mid-February record highs. Many expect domestic stock markets to dip further if the pandemic situation deteriorates. A saving grace for the market could be the corporate earnings season that starts April 12, with Tata Consultancy Services likely to report March-quarter results.

FPIs’ Withdrawal

Foreign portfolio investors (FPIs) have withdrawn a net Rs 929 crore from the Indian markets this month amid concerns over economic recovery. FPI outflows followed a rise in COVID cases and a sharper depreciation in the Indian rupee compared with the US dollar. The rupee on April 12 opened at 74.96 per US dollar and hit a low of 75.14 per US dollar.

Also read: UN, IMF expect Indian economy to bounce back strongly in 2021

What Is Expected?

Market players believe the economy will not close down the way it did last year. The second wave would delay the economic recovery and a return to normalcy. Investors draw solace from the ongoing vaccination drive. So, in the near term, they fear temporary setbacks in view of the fact that the pandemic situation is not new. Investors can now wait for direct stock buying as the market decline result in buying good stocks at an attractive price in the coming days.

Worrying Aspect

India’s manufacturing sector activity slackened sharply in March, with the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipping to a seven-month low of 55.4 in March from 57.5 in February. India’s manufacturing sector activity slackened sharply in March, with the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipping to a seven-month low of 55.4 in March from 57.5 in February. The situation could be as difficult this month too. Manufacturing made up 27.5 per cent of India’s gross domestic product (GDP) in 2019, lowest in two decades, showing the share of the sector continues to shrink in the economy despite the government’s Make-in-India push.

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