Indian markets crashed a staggering 550 points in trade by 3.00 pm, as heavyweights fell sharply, as global cues were weak. The Nifty was down a staggering 150 points, and the Sensex fell below 37,000 points.
Here are 5 reasons the indices crashed in trade:
US Fed sounds less hawkish
The US Federal Reserve cut interest rates by 25 basis points, as was largely expected. However, the tone was less hawkish, casting doubts over future rate cuts. This led to the dollar being firm and a firm dollar is not good news for equities. Indian equities fell in line with Asian markets, though the damage was even more severe in India.
It is likely that the next few days may see even more selling pressure from Foreign Portfolio Investors. Already, Foreign Portfolio Investors have been extremely disappointed by the tax surcharge levied by the Union Budget, which has actually led to huge selling pressure.Mr. Vivek Ranjan Misra, Head of Fundamental Research, Karvy Stock Broking said:
"Global markets were expecting a more dovish Fed and are disappointed by "mid cycle adjustment" this has led to a rise in the dollar (DXY was at 2 year high) this is not good for EM equities. For Indian equities, this is on top of the headwinds it has faced recently, like FII selling on account of tax proposals. There are other reasons as well, firstly the weakness in economy has not abated, as evident by the core sector data and auto sales.
Secondly while some companies have reported good numbers, the vast number have been disappointing and commentary has not been encouraging. For Indian markets the next important trigger is the RBI policy meeting next week, and any policy decision the government may take to stimulate the economy. We continue to believe that the economy should stabilize in Q2 FY 2019-20 and the markets should be in better shape in a couple of quarters."
Weak auto numbers
Auto numbers have been extremely which has led to a fresh round of selling pressure. Maruti Suzuki reported a drop of 33.5 per cent in sales for the month of July, 2019. Sales of mini cars Alto and old WagonR fell 69.3 per cent to 11,577 units, those of compacts (Swift, DZire, Baleno, Ignis, Celerio and new WagonR) fell 22.7 per cent to 57,512 units in comparison to the same time last year.
While total domestic sales fell 33.5 per cent, export sales too fell 9.5 per cent. Mahindra too reported weak numbers, which saw sales drop 15 per cent, while Escorts too saw a slump of 15 per cent.
Numbers from the auto sector that would be reported in the next few days are also expected to be weakish.
Fall in heavyweights
Normally when the heavyweights fall it tends to pull the indices down sharply. Among the heavyweights that lost ground were HDFC Bank, Infosys and HDFC, which pulled the indices down sharply. Apart from this another heavyweight Larsen and Toubro also dropped near 2 per cent.
Most of these shares particularly HDFC and HDFC Bank are heavily owned by Foreign Portfolio Investors. These set of investors have been selling in the markets, which have pushed the benchmark indices lower. In fact, the shares of HDFC dropped as much as 2 per cent in trade today.
Dollar gains against a basket of currencies
The dollar gained against a basket of currencies, which led to a further fall in domestic equities. The Indian rupee fell 41 paise against the dollar to pierce the 69 per dollar mark.
It is likely that we will continue to see the rupee weaken in the next few days.
Technicals points to extreme weakness
All technical support at this stage seem to be breaking and the markets are likely headed lower. Investors may start nibbling, but, only into quality stocks. Several stocks, including some good quality names are seeing their shares being eroded. Unless, Foreign Portfolio Investors stop selling into stocks, the market slide is most likely to continue.
Another worry is that if the pace of fall gathers momentum, we might see some drop in equity mutual funds, through the SIP route. Remember, this is what has sustained the market so far and any drop in SIPs, may see a further fall in the markets.