Why is Sensex falling: What’s behind Sensex’s 400-point fall? Here are 5 factors dragging market lower

A disappointing quarterly earnings season and threats of disruptions in business due to the coronavirus epidemic in China allowed the bears to tighten their grip on Dalal Street on Tuesday.

Benchmark indices are staring at a fourth-successive close in the red. BSE flagship Sensex fell over 400 points, while NSE Nifty slipped below 11,950. Broader market indices fared worse than benchmarks, with Nifty Smallcap declining 1.55 per cent to below the 6,000 mark, while Nifty Midcap down 1.34 per cent. Nifty 500 was down 1.06 per cent to 9,786.

Investors on Dalal Street lost Rs 1.88 lakh crore in market capitalisation on BSE today.

Here are the top factors that dragged the market lower:

Businesses feel coronavirus heat

Businesses across the world have projected disruptions and top line erosion due to the coronavirus epidemic in China. The pessimistic view spooked traders on Dalal Street.

iPhone maker Apple Inc. said it was unlikely to meet its sales outlook because of the epidemic, which has claimed more than 1,800 lives in mainland China and infected about 72,500 people.

Growth in world merchandise trade is expected to remain weak in early 2020 and coronavirus outbreak may dampen trade prospects further, according to the WTO. This does not augur well for India’s exports, which have recorded negative growth from August till January.

A wider impact on the steel industry is also expected. The impact of the outbreak will be felt on the global steel industry for at least two to three years, as China is the largest producer of the alloy, Union Minister Dharmendra Pradhan said on Monday. Metal stocks were among the biggest losers in Tuesday’s trade.

AGR: Sword of Damocles

The AGR issue that has put banks along with telecom firms in the spotlight has spooked investors on the Street. Telcos owe Rs 1.47 lakh crore to the government, as per assessment by the Department of Telecom, however, telcos dispute the quantum.

With a massive statutory obligation, threat of a default, especially by Vodafone Idea, looms large. In case that becomes a reality, banks will have to bear the brunt as they have huge exposure to the telecom major.

Banking stocks were trading down in Tuesday’s trade. Nifty Private Bank was down 1.29 per cent while Nifty PSU Bank shed 1.23 per cent. IndusInd Bank, which has a debt exposure of Rs 3,995 crore to Vodafone Idea, tanked 4.31 per cent to Rs 1,122.25.

Earnings disappointment

Barring select sectors, recently concluded earnings season was a disappointment, which has made equities relatively less attractive. The earnings growth during the October-December period was led by banking and financials.

“The earnings growth was led by BFSI and consumer segment in this quarter while commodities like metals and oil and gas were the big drags. Nifty earnings ex-BFSI is at an absolute 0 per cent growth,” said Gautam Duggad, Head of Research – Equity, Motilal Oswal Securities.

Ajit Mishra, Head of Research, Religare Broking said, companies like HDFC, Axis Bank, Dr Reddy’s, SBI, Bajaj Finance, Jubilant Food, Indigo, TCS, HCL Tech and L&T reported a decent set of numbers in Q3.

“However, consumer and auto stocks reported muted numbers on the back of a slowdown in the economy amid weak demand scenario. Their profit showed decent growth due to the lower input cost and corporate tax benefit,” he added.

Technical charts spell doom

Nifty on Monday formed a bearish candle on the daily chart for the third straight session. The index closed below its 20-day simple moving average (SMA) of 12,059, and made a lower low formation for yet another day, suggesting supports were shifting lower. Analysts said any sustained move below 12,000 could bring the bears back.

“From a short term trader’s perspective, 12,000 on Nifty is an important support for the index. If that support gets taken out over the next one to two weeks, then there could be a chance of index retesting budget lows,” said Kunal Bothra of kunalbothra.co.in.

The index broke the support in Tuesday’ s trade.

Global markets down

Asian shares also fell on Tuesday. Thai shares and Singapore stocks fell 0.7 per cent and 0.6 per cent, respectively, making them the top losers in the region.

S&P500 e-mini futures slipped as much as 0.4 per cent in Asian trade while Nasdaq futures fell 0.6 per cent. European stocks were expected to follow suit, with major European stock futures trading 0.5-0.6 per cent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.0 per cent, while Tokyo’s Nikkei slid 1.4 per cent, dragged down by tech stocks.

China’s CSI300 blue chip shares gave up 0.5 per cent, following a strong rally that was fuelled by hopes Beijing would introduce more policy stimulus.