Sensex & Nifty Crash 2020

As trading commenced on Friday the 13th, the looming fears of the Coronavirus pandemic bundled with various other factors made the Nifty nosedive 10% to 8,624 and the Sensex crash by 9.4% to 29,687, resulting in a nation wide trading-halt for the first time in 12 years.

What followed in line for the next few days was a domino-effect induced by panic selling and share dumping by foreign entities, putting the stock market into a steep bearish trend. On Thursday, Sensex fell by 1700 points and Nifty fell by 400 points. The crash has sucked out wealth amounting to Rs.7 Lakh crore from the share market. The IT and Automobile industries have taken the biggest hit. The IT Index was at a 27 month low and the Automobile Index has hit a 6 year low. Even private banks such as Induslnd Bank, ICICI Bank and Axis Bank took blows of 8-11%.

Here are a few of the reasons for the same.

1) Coronavirus Pandemic

India now has  236 cases of  the novel coronavirus, COVID-19 and globally economies are in turmoil due to the rising pandemic. Thus, a fear of uncertainty prevails amongst  people. Possibilities of a full fledged community spread and apprehensions about the near future has created a tense environment in the world. The Prime Minister’s call for a nationwide curfew along with large-scale shutdown of businesses, travel restrictions and social distancing, though necessary, will put the economy under further duress.

However, various experts anticipate a steady recovery in the stock market to levels prior to the culmination of the global pandemic.

2) Oil War

As economies came to a halt due to the spread of the novel Coronavirus, the demand for oil reduced drastically. The Organisation of Petroleum Exporting Countries (OPEC) along with a few other countries  decided to cut down on oil supply to maintain price stability. Russia rejected this proposal, and instead decided to increase oil production to wage a war against American shale oil conglomerates and put them out of business so that they could have a significant market share as oil exporters. Saudi Arabia followed suit by increasing production and reducing prices.

While this move benefits oil importing countries such as India, global markets are suffering drastically as oil prices have fallen by more than 30%.The Dow Jones Index which indicates the market trend in U.S has fallen by over 7% since the commencement of the oil war which has subsequently disrupted markets in India and abroad.

3) Share dumping by Foreign investors

Foreign Institutional Investors (FII) are heavily disinvesting from the Indian Market. Shares amounting to Rs.43,273 crore have already been sold. Global markets are also witnessing a plunge as Indices such as MSCI’s Asia-Pacific index fell to a 4 year low. The Nikkei index which indicates market performance in Japan has fallen by 1% and the KOSPI index which indicates market performance in Korea has fallen by 8%.

4) Credit default fears

After the Yes-Bank crisis credit and finance institutions are being critically viewed in the market causing a sharp drop in the share price of banking institutions which have been falling incessantly. Other companies who aren’t performing well in the current scenario are also being viewed as potential credit defaulters.

5) Liquidity of assets

As fear mongers across the globe with prolonged uncertainty about the near future, Investors are liquidating their shares, bonds and commodities. Even the most stable assets such as Gold are being liquidated by investors due to the uncertainty that has gripped the globe.

Conclusion

As the markets dip, relief can only be expected as the global pandemic meets its culmination and the government stimulates growth. Till then, it is anticipated that the market will remain susceptible to economic shocks as the Coronavirus pandemic continues to unfold.

Considering that our own economy has withstood several blows in the past year and was still recovering from them, stabilization and the resumption of growth will take time as many sectors such as banking, automobile, tourism etc. have been badly hit.

Investors can expect economic stimulus from the government in forms of rate cuts amongst other fiscal measures.Securities and Exchange board of India (SEBI) is actively trying to boost investor confidence by increasing margin restrictions on volatile stocks. Various global banking institutions are also percolating liquidity through purchase of bonds and reducing reserve requirements as seen in China.

The market is witnessing a long due correction and hence would make a wonderful buying opportunity to jump on the anticipated bull bandwagon. However Investors are advised to not rush in and invest with an intent of holding equity till the markets restore.