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United States President Donald Trump and Secretary of State Mike Pompeo joined the concerns with new efforts to blame the pandemic on China, where the Covid-19 outbreak is believed to have originated.
At 9:20 a.m., the BSE flagship Sensex dropped 1,722 points or 5.11 percent to 31,995, while the benchmark NSE Nifty index fell 497 points or 5.05 percent to 9,362. The broadest indices in the market traded slightly better than their main peers as Nifty Smallcap fell 3.53 percent, while Nifty Midcap fell 4.51 percent. Nifty 500 was down 4.79 percent.
India VIX, the indicator of market fear, rose 28 percent to break above 43, after a month of record decline. The index fell 47 percent in April.
FACTORS BEHIND THE MARKET FALL
1. New tensions are brewing
The United States and China, which barely reached an agreement last year to end the 18-month trade war, are now involved in another dispute that threatens more pressure on world economies and damages market sentiments at home.
The dispute over the origin of the coronavirus curbs optimism about an economic restart, even as countries around the world ease restrictions. This comes at a time when most major economies expect short-term GDP contraction.
The United States tried to blame China for the pandemic, accusing the virus of a laboratory in the central Chinese city of Wuhan.
2. Fourth Quarter Earnings Disappoint
Earnings for the March quarter so far have disappointed investors on Dalal Street. On Thursday, Reliance Industries, Hindustan Unilever and Tech Mahindra joined colleagues who did not meet street estimates, acting as a buffer when markets reopened after a long weekend.
Shares of these companies fell as much as 7 percent in morning trading, lowering benchmarks.
It should be noted that the impact of the national blockade was only one week until March. In the earnings of the June quarter, the real impact of the blockade will be known.
3. Lockdown 3.0
The second extension of the blockade, which will take effect until May 17, eased the restriction in certain areas, but analysts feared supply-side disruptions.
The government has designated 130 districts as red zones, including most metropolitan cities, that will remain under strict blockade. Around 284 districts have been classified as orange zones, and the remaining 319 districts as green zones. The orange and green areas will be able to enjoy significant relaxations in the level and type of economic activity carried out gradually. However, interstate transportation via trains, flights, and highways remains restricted.
“There will be some interruptions on the supply side. We do not expect activities to resume immediately. Q1 and Q2 will remain significantly under stress. Starting in the third quarter we can see a gradual return to normality. Even that will be slower than last year, “said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.
4. Weak global signals
Globally, the dollar rose, stock markets struggled for traction, and oil fell. In tight trade, with China and Japan on vacation, US stock futures fell 1.7 percent and US crude fell 7 percent. The secure US dollar rebounded to a week’s highs against the sensitive Australian and New Zealand dollars.
South Korea’s KOSPI fell, Hong Kong’s Hang Seng returned from a two-session vacation with a 3.5 percent drop, while Australia’s ASX 200 posted a 0.5 percent gain.
MARKET AT A GLANCE:
In the 30-share Sensex package, Sun Pharma was the only scrip trade with a profit. The stock added 1.23 percent to Rs 470.
Reliance Industries, Hindustan Unilever and Tech Mahindra, which fell short of Street’s estimates for March quarter earnings, sank as much as 7 percent in Monday’s trade.
Bajaj Finance and ICICI Bank were the biggest losers, down more than 8 percent, while Tata Steel, IndusInd Bank and M&M fell 6-8 percent.
Except for Nifty Pharma, which gained 0.12 percent, all sectors in NSE traded cuts. Nifty Private Bank was the biggest loser, with a 6.93 percent drop, while Nifty Financial Services and Nifty Auto fell nearly 6 percent.
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