Monday mayhem marks worst day for Sensex: 5 factors causing this crash
Heavy selling by foreign investors and doubts over stability in Indian financial systems following the crisis at India’s fifth largest private lender YES BankNSE 31.58 % also dampened the mood.
So is the oil price crash alone to blame for this mayhem? India is usually a winner in case of oil price correction, yet investors sensed trouble. Why? Going by the buzz on Dalal Street, here are the key factors dragging the market in Monday’s trade:
Oil price crash
Crude oil prices tanked over 30 per cent following Saudi Arabia’s decision to cut prices and raise production after the talks with OPEC+ countries fell out, marking the biggest price crash since the first Gulf War. This led to a crash in the shares of major energy firms in India including Reliance IndustriesNSE -12.34 % and ONGC that fell up to 12 per cent.
Analysts see the oil price crash is largely negative for India despite it depending heavily on imports. “The impact is much more severe in areas that rely on oil prices. India cannot really tolerate too high oil prices, but neither can India tolerate it when oil prices are too low. India really needs a goldilocks situation. Net-net, for emerging markets, it means less growth, less reflation, greater pressure in high yield markets and higher spreads. Very low oil prices are negative for EMs, not positive,” said Viktor Shvets of Macquarie.
Covid-19 panic deepens
Investors panicked over the economic damage from the coronavirus outbreak. The number of people infected by the virus topped 1,07,000 across the world as the outbreak reached more countries. Death toll in Italy jumped by more than 130 in the past 24 hours to total 366 as the country locked down a large region and quarantined nearly 16 million people. In West Asia, Riyadh has shut schools and universities.
In the US, two more people succumbed to the novel coronavirus in Washington state, bringing the nationwide toll to 19, while the number of confirmed cases in New York rose to 89. Various analyst estimates have pegged the total loss due to the virus at up to $2.4 trillion. It could wipe $211 billion off Asia Pacific economies this year, S&P Global ratings warned.
Questions over financial stability
The YES Bank crisis has raised concerns over the stability of the country's banking system, adding to the woes of domestic investors, traders said.
Many financial entities have exposure to YES Bank bonds that have been downgraded by rating agencies. Domestic rating agency Icra downgraded the crippled bank's bonds worth Rs 52,612 crore.
YES Bank has already defaulted on coupon payout on the Basel II Tier-I bonds due on March 5. Icra fears the bank may default on an upcoming coupon payment on Basel II lower Tier-II bonds as well, unless the restrictions are removed.
FII outflow
Non-stop selling by the foreign institutional investors added to the woes of Dalal Street. In last 15 sessions, FPIs have withdrawn a net Rs 21,937 crore from Indian equities, NSE data compiled by Accord Fintech showed. February 24 onwards, FIIs have been net sellers of equities in India every day.
Market veterans like Raamdeo Agrawal blamed it on ETF redemption by foreign investors amid a risk-off sentiment pervading financial markets globally, which has led to bulk withdrawals.
Global markets tumble
Major equity markets across the globe traded in the red, discouraging the traders on the Dalal Street. Japan's Nikkei fell 5.2 per cent and Australia's commodity-heavy market tanked 6.4 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan lost 3.9 per cent in its worst day since late 2015, while Shanghai blue chips dropped 2.8 per cent.
Investors drove 30-year US bond yields beneath 1 per cent on bets the Federal Reserve would be forced to cut interest rates by at least 75 basis points at its March 18 meeting, despite only just having delivered an emergency easing.
Energy stocks took a beating and E-Mini futures for the S&P 500 dived 4.89 per cent. EUROSTOXXX 50 futures fell 5.9 per cent and FTSE futures 6.8 per cent.
So is the oil price crash alone to blame for this mayhem? India is usually a winner in case of oil price correction, yet investors sensed trouble. Why? Going by the buzz on Dalal Street, here are the key factors dragging the market in Monday’s trade:
Oil price crash
Crude oil prices tanked over 30 per cent following Saudi Arabia’s decision to cut prices and raise production after the talks with OPEC+ countries fell out, marking the biggest price crash since the first Gulf War. This led to a crash in the shares of major energy firms in India including Reliance IndustriesNSE -12.34 % and ONGC that fell up to 12 per cent.
Analysts see the oil price crash is largely negative for India despite it depending heavily on imports. “The impact is much more severe in areas that rely on oil prices. India cannot really tolerate too high oil prices, but neither can India tolerate it when oil prices are too low. India really needs a goldilocks situation. Net-net, for emerging markets, it means less growth, less reflation, greater pressure in high yield markets and higher spreads. Very low oil prices are negative for EMs, not positive,” said Viktor Shvets of Macquarie.
Covid-19 panic deepens
Investors panicked over the economic damage from the coronavirus outbreak. The number of people infected by the virus topped 1,07,000 across the world as the outbreak reached more countries. Death toll in Italy jumped by more than 130 in the past 24 hours to total 366 as the country locked down a large region and quarantined nearly 16 million people. In West Asia, Riyadh has shut schools and universities.
In the US, two more people succumbed to the novel coronavirus in Washington state, bringing the nationwide toll to 19, while the number of confirmed cases in New York rose to 89. Various analyst estimates have pegged the total loss due to the virus at up to $2.4 trillion. It could wipe $211 billion off Asia Pacific economies this year, S&P Global ratings warned.
Questions over financial stability
The YES Bank crisis has raised concerns over the stability of the country's banking system, adding to the woes of domestic investors, traders said.
Many financial entities have exposure to YES Bank bonds that have been downgraded by rating agencies. Domestic rating agency Icra downgraded the crippled bank's bonds worth Rs 52,612 crore.
YES Bank has already defaulted on coupon payout on the Basel II Tier-I bonds due on March 5. Icra fears the bank may default on an upcoming coupon payment on Basel II lower Tier-II bonds as well, unless the restrictions are removed.
FII outflow
Non-stop selling by the foreign institutional investors added to the woes of Dalal Street. In last 15 sessions, FPIs have withdrawn a net Rs 21,937 crore from Indian equities, NSE data compiled by Accord Fintech showed. February 24 onwards, FIIs have been net sellers of equities in India every day.
Market veterans like Raamdeo Agrawal blamed it on ETF redemption by foreign investors amid a risk-off sentiment pervading financial markets globally, which has led to bulk withdrawals.
Global markets tumble
Major equity markets across the globe traded in the red, discouraging the traders on the Dalal Street. Japan's Nikkei fell 5.2 per cent and Australia's commodity-heavy market tanked 6.4 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan lost 3.9 per cent in its worst day since late 2015, while Shanghai blue chips dropped 2.8 per cent.
Investors drove 30-year US bond yields beneath 1 per cent on bets the Federal Reserve would be forced to cut interest rates by at least 75 basis points at its March 18 meeting, despite only just having delivered an emergency easing.
Energy stocks took a beating and E-Mini futures for the S&P 500 dived 4.89 per cent. EUROSTOXXX 50 futures fell 5.9 per cent and FTSE futures 6.8 per cent.