Sensex tanks over 1,400 points, Nifty below 11,000: Five factors behind the crash

Sensex and Nifty plummeted over 3% in Friday's early trading session, tracking a massive selloff in global equities amid rising concerns over the economic impact of the coronavirus outbreak, that has killed over 3,300 and affected above 98,000 people globally.

With the opening bell on Friday, Sensex tanked 1,450 points to 37,040 levels with all components in the red. Similarly, Nifty fell below 11,000, down 318 points at 10,951. Mid-cap and small-cap indices were down 443 points and 360 points in early trade.

Today, Sensex has made a low of 37,011.09, erasing 1,459 points against its previous close of 38,470 and Nifty fell to 10,827.40, declining 441 points from 11,269, its close of Thursday. 

Later, indices recovered, with Sensex falling 995 points to 37,525 and Nifty trading 310 points lower at 10,958.

Sensex has declined 6.9% in a month and 4.9% in three months. On a similar note, Nifty has erased 7.2% in a month and 5.5% in last three months.

India's Volatility index, VIX rose 9.57% to 25.47 from last day's 23 on NSE. Market breadth turned negative with 1,530 stocks falling into red against 204 stocks trading in green on BSE.  

Post 3% fall in Sensex and Nifty, rupee plunged 65 paise to 74 today, its weakest since October 2018.

In the meanwhile, oil prices dipped lower on demand concerns even after reports that OPEC provisionally agreed to cut production by 1.5 million barrels per day, Geojit Financial Services reported. Global oil benchmark Brent crude futures cracked 1.04% to USD 49.47 per barrel.

After a volatile tradins session on Friday, Sensex sank 893 points to end at 37,576, while Nifty plunged 289 points to close at 10,979. On Thursday, Sensex closed 61 points higher at 38,470 and Nifty50 ended 18 points higher at 11,269.

Here's a look at five factors why Sensex, Nifty corrected over 3% today.

1. YES Bank stock crash

Shares of Yes Bank tanked 85% on Friday's session after the Reserve Bank of India (RBI) placed the private lender under a moratorium, capping deposit withdrawals at Rs 50,000 per account for a month and superseded its board. This was a major factor that backed the bearish trend to the broader indices.

With YES Bank's fall, banking stocks led the losses with BSE Bankex falling 1,200 points to 31,962.  Later, Bank Nifty lost 4.18% to 27,565 compared to the previous close of Rs 28,815.   

This was after the finance ministry confirmed that State Bank of India (SBI) was directed to bail out the troubled lender, which is in the limelight since last year on the back of capital shortage issues. The bank was a key lender to most of the financially troubled companies such as IL&FS, Dewan Housing, Jet Airways, Cox & Kings, CG Power, Cafe Coffee Day and Altico.

The fourth-largest private sector lender had been looking for up to $2 billion to shore up its capital base but could not find credible investors to infuse funds into the lender.

YES Bank stock has undergone a steady decline over the last few years. The stock that had once hit Rs 393.20 (17th August 2018), today fell to a fresh all-time low of Rs 5.50 from its previous close of Rs 36 per equity share.

Santosh Meena, senior analyst at Tradingbells said, "YES Bank fiasco comes as an out of syllabus question for the market amid ongoing worries of coronavirus. The market took YES Bank event very negatively because it raises a question on the stability of the overall Indian financial system. The market is facing a double whammy situation where global markets are struggling on the back of coronavirus worries and YES Bank fiasco is a setback event on the domestic level. There is a need for some clarity on the both domestic and global front for the market to witness any pullback otherwise the pain will continue."

2. Coronavirus spread hurts global sentiments

Globally, COVID-19 virus that emerged late last year in China erupted to other countries, causing concerns over the economic impact of the coronavirus outbreak, that has killed over 3,300 and affected above 98,000 people globally.

Travel restrictions and factory closures aimed at curbing the spread of virus has further caused massive business growth fallouts and is likely to hit global growth for the next quarter as well. Coronavirus outbreak has also triggered corporate defaults, office evacuations, and panic buying of daily necessities worldwide.

Additionally, G7 advanced economies announced on Friday that they are not considering taking further action now, as volatility remained high in global financial markets following this week's G7 call on the coronavirus outbreak.

With central banks around the world stepping back to easing mode, investors worldwide have realised the amplifying impact of the virus in global growth.

Thirty-one cases of COVID-19 have been confirmed in India so far, out of which 3 have been recovered. Another 25,000 cases are under observations, as per official government data. The pandemic has disrupted supply chains and affected global growth output in real terms in the country. According to a UN report, the trade impact of the coronavirus epidemic for India is estimated to be about $348 million and the country figures among the top 15 economies most affected as the slowdown of manufacturing in China disrupts world trade.

3. Weak global equities

Investor sentiment was hit by intense selling in global equities with heightened volatility due to the concerns of the economic impact led by coronavirus on world economies.

Asian shares fell on Friday following another Wall Street selloff. Stock exchanges in the US too ended up to 3% lower on Thursday.  While, Dow Jones Industrial Average fell 3.58%, S&P 500 lost 3.39%, and the Nasdaq Composite dropped 3.1%. Following this, bourses in Shanghai, Hong Kong, Seoul and Tokyo also cracked up to 3% each.

Elsewhere in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.5%. Australian shares fell 1.86%, while Japan's Nikkei stock index slid 1.45%.

4. Foreign fund outflows

Further weakening sentiment, incessant foreign fund outflow has also spooked market participants, with foreign institutional investors (FIIs) offloading another Rs 2,476.75 crore worth of securities on Thursday.

Over the week, FIIs have sold equity shares worth 2,476.75 crore on Thursday, Rs 878.38 crore on Wednesday, Rs 2,415.80 crore on Tuesday and Rs 1,354.72 crore on Monday. This amounts to Rs 7,125 crore in March this year.

Amid rising geopolitical tensions and heightened worries due to virus outbreak, FIIs have turned net sellers in the domestic capital market. Foreign investors have offloaded  Rs 23,820 crore since the beginning of this year.

5. Technical outlook

Most technical analysts have maintained a cautious stance on Indian markets in the recent weeks and suggested volatility to remain high for the near term. Coronavirus would be the single biggest factor dictating global as well as a domestic market trend going forward, suggest market experts as the slowdown is already reflecting in the economic data. This has further quantified the worries of global investors.

As per Geojit's market radar report, Nifty was expected to give a downside gapped opening. As per the report, the potential for upside reversal depends on the ability of Nifty to close above 11,053, otherwise next expected level could be at 10,685.

After the market tanked, Santosh Meena, Senior Analyst at Tradingbells suggested technical outlook of Nifty and said," Overall texture of the market has turned bearish for the long term as Nifty has slipped below sacrosanct support of the 11,000 while bulls have some hope in 10,840-10,700 support zone. If Nifty manages to hold this zone then we can expect a pullback towards 11,050-11,300 zone which will be a critical supply area while if Nifty slips below 10,700 level then it may head toward 10,200 level."

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