Benchmark indices suffered their worst single-day drop in more than seven months wiping out Rs 8,21,667 crore of investor wealth as the market reacted with alarm to Friday’s announcement that the Reliance-Aramco deal had collapsed, Paytm’s IPO debacle and the U-turn on farm laws.
While the 30-share Sensex plummeted 1170.12 points or 1.96 per cent to end below the 59000-mark at 58465.89, the broader Nifty crashed 348.25 points to settle at 17416.55.
The mayhem in Dalal Street on Monday has reignited fears about market returns after a good show for most part of the year, with questions raised about the future participation of retail investors.
Analysts fear the confidence of the retail investors — who contributed to the record-breaking run — may take a knock from the poor show of Paytm and the recent losses in the secondary markets.
Foreign portfolio investors (FPIs) have already turned cautious because of concerns over rich valuations. Provisional data showed they sold stocks worth Rs 3,900 crore on Monday.
Market circles pointed to multiple reasons for the crash: investors saw negative news flow last Friday — the markets were closed on account of Guru Nanak Jayanti — as Prime Minister Narendra Modi announced the Centre would repeal the three farm laws, leading to fears of the reform process getting derailed.
Later that day, there was another negative surprise: heavyweight RIL announced it was re-evaluating a potential $15 billion deal with Saudi Aramco, seen as a major upside for the stock. The shares of RIL cracked 4.42 per cent on Monday to Rs 2,363.40.
Financial stocks were also swept away by the bear run with counters such as Bajaj Finance and Bajaj Finserv losing up to 5.74 per cent. Others such as Kotak Mahindra Bank, State Bank of India, Axis Bank, IndusInd Bank, HDFC Bank and Axis Bank lost nearly 3.50 per cent. Only three stocks gained with Bharti Airtel, up 3.90 per cent, leading the pack after it announced a hike in tariffs.
Analysts said weak global factors played its role, with fears central banks such as the US Fed raising rates on account of inflation. A fresh rise in Covid-19 cases and lockdowns in some of the countries are also causing unease among investors.
“Valuations concerns have resurfaced amongst FPIs even as the new age IPOs come under severe selling pressure. Concerns over Government taking a step back on its reform agenda on the farm laws front, negative news flow from Reliance and Paytm’s relentless fall spooked sentiments in a market where the other worries of inflation and interest rates are already taking a toll,’’ Deepak Jasani, head of retail research, HDFC Securities said.
He added that a resurgence of coronavirus outbreaks in the US, Europe and some other regions is also weighing on investor sentiment.
Comments by advisers to the Chinese central bank about risks of stagflation have reinforced concerns about inflationary pressures.
The Sensex which opened in the green at 59710.48 came under pressure few minutes into trade and suffered deep losses post noon trades when it slumped 1624 points to hit a day’s low of 58011.92.
The Sensex there after recovered some ground to close at 58465.89 — a fall of 1170.12 points or 1.96 per cent. The Nifty ended at 17416.55, a drop of 348.25 points.
Analysts said stocks would continue to react to news flow in the absence of other major triggers. Brokerage Morgan Stanley projected the Sensex could hit 70000 by December 2022. It, however, added India’s relatively better performance to emerging markets is likely to halt in 2022.