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Explained: Why Sensex fell over 1,300 points in early trade


Domestic benchmark indices tumbled sharply on Monday due to increased volatility in the wake of rising Covid-19 cases in the country.

India reported over one lakh cases in the last 24 hours for the first time ever since the pandemic began in 2020, leading to a sharp increase in market volatility. Investors are now worried that fresh Covid-19 curbs may be imposed in other states after Maharashtra imposed restrictions on Sunday.

While rising Covid cases led to market weakness in early trade, the fear of fresh lockdowns seems to have taken a bigger toll on stock markets. The sentiment was reflected duly in the market today as benchmark indices fell over 2.5 per cent each.

At 11.22 am, S&P BSE Sensex was trading at 48,699.16 after falling 1,322.07 points and NSE Nifty plummeted to 14,493.70 after falling 373.65 points.

Here are key reasons behind Monday’s market crash:

RECORD COVID SURGE

India recorded more than one lakh Covid-19 cases in a span of 24 hours — the highest single-day rise in infections since the pandemic began last year. This is one of the key reasons behind the sharp jump in market volatility. The sharp rise in daily cases is likely to impact the pace of economic recovery as fresh curbs have already been imposed in Mumbai, which contributed to over 14 per cent of the country’s GDP.

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Experts now say that the market was galloping for the last few days as investors had bet on quicker-than-expected recovery that would subsequently lead to a rise in demand. However, the sharp rise in cases has changed the equation.

“The market had run up on the back of the opening up of the economy, and the resultant increase in demand. That entire story is again at risk,” said Siddharth Khemka, head of retail research at Motilal Oswal Securities, told news agency Reuters.

FEAR OF FRESH COVID CURBS

Markets have also turned nervous due to the possibility of fresh curbs in different states after the Maharashtra government announced a partial lockdown. Profitability and demand will be severely impacted if more states face restrictions as cases rise in an out-of-control fashion.

“The concern, from a market perspective, is that the virus is spreading so fast and people will not be able to work, and business and profitability will be impacted,” Khemka added.

Read | Covid-19: Will the second wave hit India’s economy?

Investors are of the view that fresh lockdowns could take a huge toll on business — some that are yet to recover from the initial blow of the pandemic. In fact, lockdown could also lead to lower sales and a general drop in demand.

VOLATILITY DENTS BANKS, FINANCIAL STOCKS

Market volatility surged sharply during early trade as the volatility index (India VIX) rose sharply by nearly 15 per cent. The volatility spike has impacted several stocks, especially from the financial domain.

Stocks for banking and financial firms like IndusInd Bank, Bajaj Finance, Bajaj Finserv, SBI, HDFC ICICI Bank were some top laggards on Sensex. The same situation prevailed on the NSE.

It seems that financial and banking companies are worried that India’s economic recovery could be much slower if cases rise so fast. In case strict lockdowns are imposed again, banks may not be able to support any form of relief measures like last time.

In addition, banking and financial companies are already bracing for a wave of NPAs due to the relief measures announced by the Reserve Bank of India after the pandemic began last year.



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