After a solid rally of near 8 per cent last week, the Sensex has dropped almost 5 per cent, losing half the gains of last week, in a single day. Here are 5 reasons the Sensex has slumped 1,700 points.
1. Playing catch-up with global markets
Indian markets were closed on Friday for Maharashtra day, while most global markets, including the US markets fell sharply. Indian markets were playing catch-up and therefore lost almost 5 per cent in trade, when trading resumed on Monday. A further downslide during the course of the week cannot be ruled out.
2. Lockdown extended
The extension of the lock-down by another 14 days has not gone down well with the markets. Though lockdown 3 has seen considerable easing, most of the red zones, which have a sizeable population is where most of the economic activity comes from. Investors are now bracing for the economic pain to prolong.
3. Rise in Covid cases
The rise in number of covid cases past the 40,000 mark has dampened sentiments. In fact, investors are a little jittery given that the last 2-days has seen a spike in the number of Covid 19 cases by 5,000. The rise in the number of cases will continue to worry the markets.
4. Corporate results below estimates
Over the weekend we had some important quarterly numbers. Heavyweights, Reliance Industries and Hindustan Unilever both announced their numbers. Hindustan Unilever announced a drop in volumes by a huge 7 per cent. This was certainly not good news and the drop was way higher than what analysts were expecting.
Reliance Industries saw its net profits slump by 39 per cent to Rs 6,348 crores, which did not go down well with the markets.
5. Fall in heavyweights
HDFC and HDFC Bank are down 7 per cent each. Both these stocks are heavyweights and tend to pull the markets down, if they fall significantly. Another heavyweight, ICICI Bank is down 9.55 per cent, which had also dragged the markets lower.
Banking stocks have the highest weightage in the Nifty and the bank Nifty is down 7.5 per cent.
About the author: Sunil Fernandes is the Managing Editor of GoodReturns.in with 25-years of experience. Prior to this, he has worked with frontline newspapers and magazines including Dalal Street Investment Journal, Deccan Herald, Hindustan Times, Oman Economic Review and Gulf Times.