Global markets were trading much higher today, with the Asian markets all higher by 1 per cent. Dow Jones Futures were also pointing to a higher openings for the US markets. Here are 4 reasons, why the Sensex crashed 1,000 points, despite strong global cues. The Nifty was now trading below the 9,000 points mark.
1. A crash in the Bank Nifty of 7% After FM’s Announcements
Banking stocks plunged in trade, after the Finance Minister announced that the threshold to initiate insolvency proceedings were raised to Rs 1 crore from Rs 1 lakh earlier.
In a bid to give some relief to companies, which are likely to default on loans due to the Covid-19 stress, Finance Minister Nirmala Sitharaman on Sunday said no fresh insolvency will be initiated for one year under the Insolvency and Bankruptcy Code. Also, coronavirus-related debt will be excluded from definition of default, she said.
2. Economic package lacked fiscal stimulus
Many analysts believe that the economic stimulus package announced by the Finance Minister, lacked any concrete fiscal measures. The belief was that it was more of monetary measures and the reforms package announced would be more helpful in the long term, rather than the short term.
The Finance Minister may have had compulsions over a loose fiscal policy, especially a ratings downgrade, should fiscal stimulus measures have been initiated to a large extent.
This led to some massive selling pressure on stocks. It is unlikely that the government would announce any more measures.
3. Goldman Sachs sees slump in GDP
Reports that Goldman Sachs estimates India's GDP (gross domestic product) to contract by an annualized 45 percent in the ongoing quarter when compared to the January-March period, also dampened sentiments. Its previous forecast for the quarter was a 20 percent slump in GDP. However, it expects India to make a strong rebound of 20 percent in the next quarter, while projections for the fourth quarter and first of next year are unchanged at 14 percent and 6.5 percent.
4. Rise in the number of Covid cases
India saw the single biggest jump in Covid 19 cases on Sunday. Over the weekend the number of cases, surpassed that of China. With some more lockdown having opened-up investors remain worried that there could be a further acceleration in cases of Covid 19.
India could possible cross the 1,00,000 infections mark by the end of today.
The Sensex was last trading 934 points lower, while the Nifty was down 274 points in trade.