Five factors behind Sensex’s 950-point crash today

The equity benchmark indices were on track for the second day of fall on Monday (indices closed weak on Friday as well). The fall comes on the back of weak macroeconomic data (dip in IIP, rise in inflation) and resurgence in Covid-19 infections. Besides, elevated crude prices and jump in also weighed on sentiment.

The BSE benchmark Sensex shed over 950 points and breached the 50,000 mark in intraday deals, while Nifty50 also gave up the 15,000 level, down over 200 points.

Weakness in index heavyweight Reliance Industries and banking and financial stocks was what dragged indices lower even as IT stocks, without much success, tried to cushion the fall.

The rout also engulfed the broader as they declined in tandem with the benchmark. The Nifty Midcap100, Smallcap100 and the broadest Nifty500 were all down over 1 per cent each.

“Market trends are unclear. While the dollar index cooling to 9.16 is a positive for capital inflows the 10-year bond yield hovering around 1.64 per cent is a concern. Also the rise in core inflation, mainly pushed up by commodity price rise, is a concern. Looks like we are at the trough of the interest rate cycle. Recent Covid resurgence is another concern,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Here are the key factors that dragged lower on Monday.

Concerns on macro print

The weak macroeconomic print spooked investors who have been ploughing money into the market amid hopes of a strong economic recovery. In a double whammy for the economy, industrial production growth re-entered the negative territory by contracting 1.6 per cent in January, while retail inflation soared to a three-month high of 5.03 per cent in February on costlier food items. That apart, WPI inflation came in at 4.17 per cent in February, up 2.03 per cent from January.

“Looking ahead, we expect large upticks in the WPI inflation over the next three months, as the wedge between the commodity prices and their year-ago level intensifies. We expect the headline and core WPI inflation to rise to around 6 per cent each in March 2021. Subsequently, we expect the headline WPI inflation to harden further to between 9-9.5 per cent , and the core-WPI inflation to climb to 7-7.5 per cent by May 2021, before displaying a more gradual moderation to 4 per cent each by the end of 2021,” said Aditi Nayar, vice-president and principal economist at ICRA.

Rising bond yields

The 10-year US Treasuries yield stood at 1.634 per cent, having risen to as high as 1.642 per cent on Friday, a high last seen in February last year. A spike in does not bode well for emerging like India as investors shun riskier assets in their favour.

Amid this backdrop, investors would keep an eye on US Federal Reserve’s monetary policy meeting, slated for March 16-17, to understand how the US central bank plans to tackle the volatility in the

Oil on a boil

Besides, rising yields, a flare-up in crude prices is another worry for markets. After rising to $71 barrel last week, Brent crude was hovering close to the $70 a barrel mark amid output cuts from major producers and optimism about global economic recovery. Oil prices will continue to be closely watched as India is one of the biggest oil importers in the world.

Covid fears return

India recorded 26,291 new Covid-19 cases on Monday, its highest single-day spike in 85 days, taking the country’s infection tally to 1,13,85,339, according to Union Health Ministry data. With 118 new fatalities, Covid-19 death toll reached 158,725, or 1.40 per cent of total confirmed infections. While the inoculation drive could soothe investors’ concerns, the latest concerns surrounding the AstraZeneca vaccine and suspension of its use in some nations in Europe could prove to be a setback if authorities in India decide to follow suit. Besides, sporadic lockdowns also pose the threat to already fragile Indian economic recovery.

Weakness in global markets

Asian stocks reversed gains and dipped while the US and European equity futures were mixed as liquidity concerns weighed on Chinese shares and benchmark Treasury yields traded around a one-year high. Chinese shares extended declines on concern the nation’s economic recovery portends less accommodative monetary policy, Bloomberg reported.

Japan’s Topix index rose 0.9 per cent while South Korea’s Kospi index shed 0.3 per cent and China’s CSI 300 Index fell 2.7 per cent. S&P 500 futures also declined, indicating a weak start for US markets later today.

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