Buoyed by positive global sentiment with Asian markets notching fresh 2-year high, Indian indices started Monday's (August 31, 2020) trade on a strong note with Sensex reclaiming 40,000 levels in early morning trade. But a host of weak domestic cues pulled the indices into the red, with Nifty settling below 11400 points at 11387.5, down 2.23% or 260 points and Sensex losing 2.13% or 839 points to end at 38628.29.
Here are listed reasons which dragged indices down today:
1. Escalation of India-China tension:
After Chinese troops intruded in Eastern Ladakh, Indian markets reversed all morning gains. Indian Army today said Chinese troops carried out provocative military movements in Eastern Ladakh on August 29-30 night to change the status quo at the Line of Actual Control (LAC). Further the Army added that Indian soldiers took steps and strengthened their positions and thwarted China's target.
"Indian troops pre-empted this PLA activity on the Southern Bank of Pangong Tso Lake, undertook measures to strengthen our positions and thwart Chinese intentions to unilaterally change facts on the ground. A Brigade Commander level Flag Meeting is in progress at Chushul to resolve the issues", said Col Aman Anand, PRO (Army).
2. Profit Booking:
The news of worsening border tensions hit the market sentiment and investors sold-off stocks in large number. Also after three-straight months of gains since May for the stock markets, this correction was seen to be largely overdue by experts.
3. GDP For Q1FY21 Seen to contract:
Given the pandemic induced economic fall-out, economists believe Indian economy will post negative growth rate for the quarter ended June of FY21, which can turn out to be the worst quarterly numbers ever since Indian began recording quarterly GDP data in 1996.
Various economists and rating agencies see a contraction of anywhere between 16-25% during the quarter ended June, with ICRA's estimates being the worst at 25% contraction in both GDP and GVA year-on-year.
4. Sebi's New Margin Rule also pressurized the markets:
Stock markets also came under pressure due to the new margin rules that will come into effect from tomorrow, September 1. As per the new system, brokerage firms will need to collect margin for both the buy and sell orders from investors upfront. And in case they do comply with the ruling, they will have to face penalty consequences.
Also, brokerage houses maintaining client securities pledged with them through title transfer will also need to shift to the new system. However brokers said that they are still not ready to migrate to the new system operationally and need more time.