Nifty hit a high of 11,794 and Sensex of 40,010 in the first of the trading sessions. However in the second half, Indian markets reversed gains and fell into the red zone, Nifty ended below 11,400 and Sensex at 39,628.
Sectors like healthcare, banks, realty and capital good witnessed selling pressure.
These are the factors that led to the sudden crash
The expected contraction in the GDP figures
As per the data released by the National Statistical Office (NSO), India’s Gross Domestic Product (GDP) for the April-June quarter (Q1) slipped by a sharp 23.9 percent.
The June quarter GDP data is the worst contraction in the history of the Indian economy since Independence. However, there was already a negative sentiment in the market. According to the economists surveyed by Bloomberg, India’s GDP is estimated to have declined 18 percent in the quarter ended June.
According to ICRA, a credit rating agency and consulting firm, India’s GDP would plunge 25 percent in the April-June quarter.
ICRA stated that the economic performance was primarily weighed down by the substantial drag imposed by three crucial production sub-sectors, that is construction, manufacturing and trade, hotels, transport, communication and broadcasting related services.
With more than 80,000 new infections a day and total cases topping 3.6 million in a country of 1.3 billion, India’s road to recovery appear a long and hard one. A mix of monetary and fiscal measures to prop up the economy have fallen short, leaving millions jobless and destitute, and businesses on the brink of bankruptcy.
Geopolitical tension between India and China
Intrusion by Chinese troops in Eastern Ladakh gave enough ammunition to stock market bears to push domestic indices sharply lower on Monday, wiping off all morning gains. A general profit booking also weighed on the indices, analysts said.
Col Aman Anand, PRO (Army), informed that PLA troops violated the previous consensus arrived at during military and diplomatic engagements during the ongoing standoff in Eastern Ladakh and carried out provocative military movements to change the status quo on the nights of August 29-30.
The news hit the market sentiments as investors dumped stocks in heaps. BSE flagship Sensex plunged over 1,615 points from its day’s high. At close, the index ended down 839 points for the day to 38,628. Its broader peer Nifty fell 260 points to 11,387.
Broader markets also suffered
Nifty Smallcap plunged 4.6 percent and Nifty Midcap down 4 percent. India VIX, which measures fear and volatility in the market, jumped 27 percent today. Also, broader markets wiped out most of the gains made in the year 2020 as on Friday thanks to strong global liquidity. Hence, there could be some profit-taking in the near term but that will still be a good buy on dips opportunity.
Only 2 stocks on the Nifty50 index were in the green during the day – ONGC and. Meanwhile, Sun Pharma, SBI, Zee, Cipla, and Bajaj Finserv led the losses, down over 5 percent each.
Almost all sectors were in the red. Metal and pharms indices shed over 4.3 percent and 5.2 percent, respectively, while Nifty Auto was down 3.6 percent. Nifty Bank also lost 3.5 percent for the day.
After rallying for three consecutive months since May both Sensex and Nifty50 climbed crucial resistance levels. The S&P BSE Sensex reclaimed 40,000 in intraday trade while the Nifty50 was also trading around 11800 before it gave up gains and turned negative.
Also, it is a matter of concern that the valuation bubbles were created in several small and mid-cap (SMC) stocks by retail investors. Many small stocks without any revenues for over three years have also rallied to record levels. Once ‘smart investors’ take out their profits in such SMC stocks, the domestic market could see some pain.”