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US President Donald Trump and Secretary of State Mike Pompeo added to worries with fresh efforts to pin blame for the pandemic on China, where the new coronavirus outbreak is believed to have originated.
At 9.20 am, BSE flagship Sensex was down 1,722 points or 5.11 per cent at 31,995 while NSE benchmark Nifty dropped 497 points or 5.05 per cent to 9,362. Broader market indices were trading slightly better than their headline peers as Nifty Smallcap fell 3.53 per cent while Nifty Midcap slumped 4.51 per cent. Nifty 500 was down 4.79 per cent.
India VIX, the fear gauge of the market, climbed 28 per cent to cross above 43 level, after a month of record fall. The index dropped 47 per cent in April.
FACTORS BEHIND MARKET FALL
1. Fresh tensions brew
US and China, which barely reached a deal last year to end the 18-month old trade war, are now engaged in another tussle threatening more pressure on world economies and hurting the market sentiments back home.
The spat over the origin of the coronavirus put the brakes on optimism about an economic re-start even as countries around the world ease restrictions. This comes at a time when most major economies are expecting a contraction of GDP in near term.
The US tried to pin the blame for the pandemic on China, accusing the virus emerged from a laboratory in the central Chinese city of Wuhan.
2. Q4 earnings disappoint
March quarter earnings so far have disappointed investors on Dalal Street. On Thursday, Reliance Industries, Hindustan Unilever and Tech Mahindra joined peers who missed Street estimates, acting as a dampener when markets reopened after an extended weekend.
Shares of these companies fell up to 7 per cent in the morning trade, taking benchmark indices lower.
It should be noted that the impact of country-wide lockdown was just for a week until March. In the June quarter earnings, the real impact of the lockdown will be known.
3. Lockdown 3.0
The second extension of the lockdown, which will be into force till May 17, eased restriction into certain areas but analysts feared supply side disruptions.
The government has designated 130 districts as red zones including most metropolitan cities, which will remain under stringent lockdown. About 284 districts have been classified as orange zones, and the remaining 319 districts as green zones. Both orange and green zones will be allowed significant relaxations on the level and kind of economic activity undertaken on a graded basis. However, interstate transport via trains, flights and roads remains barred.
“There will be some supply side disruptions. We don’t expect activities to pick up immediately. Q1 and Q2 will remain significantly under stress. From the third quarter we can see some gradual return towards normalcy. Even that will be slower than last year,” said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.
4. Weak global cues
Globally, the dollar inched higher, stock markets struggled for traction and oil fell. In reduced trade, with China and Japan on holiday, US stock futures fell 1.7 per cent and U.S. crude tumbled 7 per cent. The safe-haven U.S. dollar rallied to one-week highs against the risk sensitive Australian and New Zealand dollars.
South Korea’s KOSPI fell, Hong Kong’s Hang Seng returned from a two-session holiday with a 3.5 per cent drop, while Australia’s ASX 200 eked out a 0.5 per cent gain.
MARKET AT A GLANCE:
In the 30-share pack Sensex, Sun Pharma was the only scrip trading with gain. The stock added 1.23 per cent to Rs 470.
Reliance Industries, Hindustan Unilever and Tech Mahindra, which missed Street estimates in March quarter earnings, tanked as much as 7 per cent in Monday’s trade.
Bajaj Finance and ICICI Bank were the biggest losers, down over 8 per cent while Tata Steel, IndusInd Bank and M&M fell between 6-8 per cent.
Barring Nifty Pharma, that gained 0.12 per cent, all sectors on NSE traded with cuts. Nifty Private Bank was the biggest loser, down 6.93 per cent while Nifty Financial Services and Nifty Auto fell nearly 6 per cent.
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