3 factors that led to Monday’s bloodbath on D-Street

It was a nightmare for investors on Dalal Street, who cumulatively lost over Rs 6 lakh crore in market capitalisation on Monday. Sensex fell over 2,300 points while Nifty fell below 10,500 during the day’s trade.

At the end of the trading day, Sensex closed at 35,634.95 points, 1,941.67 or 5.17 per cent lower than the previous day’s closing, while broader Nifty was at 10,451.45, down by 538 or 4.9 per cent, at 3:30 pm.

High volatility was witnessed in the domestic market, mirroring the larger global market sentiments due to the rapidly spreading coronavirus outbreak.

Recessionary fears have spiked again after an almost 30 per cent crash in crude oil prices – the most since 1991. Adding fuel to the mayhem was doubt over stability of Yes Bank, which has been put under a 30-day moratorium after it failed to raise sufficient capital.

Though SBI is likely to invest in the bank as part of RBI’s restructuring plan, the impact of the move on several sectors including mutual funds has dampened the mood of the market.

While there has been slight recovery during afternoon trade, the combined factors – especially the global concern over coronavirus – acted as a catalyst in today’s market rout.

Here are key factors behind the bloodbath on D-Street on Monday:

Oil slips, fortunes dip

Saudi Arabia’s move to slash oil prices has triggered a historic fall in global crude oil prices. Oil prices tanked over 30 per cent on Monday, which had a deep impact on shares of Indian oil majors like HPCL, IOC and BPCL. It also slashed fortunes of power companies in the country including industry major Reliance Industries Limited and ONGC.

While a prolonged period of low oil prices is good for India, a major crash in crude, however, is not a good signal for any emerging nation, reported The Economic Times. Analysts who spoke to the publication said the crash in oil price is not good for commodity-driven emerging economies and could trigger outflows from emerging market funds.

Coronavirus stings global markets

The sudden drop in oil prices led to most of the losses on Monday but the rapid spread of coronavirus outside China has kept investors around the world in panic mode. Analysts are not discounting the possibility of further disruptions to global growth as more countries continue to report fresh cases.

While it is hard to estimate the total economic damage caused by the coronavirus outbreak, the fact that it has disrupted global operations, tourism and trade is a major indicator of the losses it caused.

There are over 1,00,000 confirmed cases while several thousand people have died after being affected by Covid-19. While panic has been observed across several markets around the globe, Asian economies and markets have been worst affected.

Yes Bank episode

Nervousness among investors regarding the fate of Yes Bank also added to Monday’s market crash. Though government and RBI have come out with a revival plan for the bank, it has sent a panic wave among investors who are worried about the financial stability of India’s banking sector.

Yes Bank’s restructuring plan may cause significant damage to the bond and Mutual Fund market and many investors in the bank’s bonds may lose all their invested money.

The fate of Yes Bank has also triggered falling in banking stocks, triggering further speculation about the health of India’s banking sector. The Yes Bank eposide, therefore, could be a major eye-opener for the government with regards to the ailing banking sector.

These are the three primary reasons for the carnage on Dalal Street apart from heavy selloff by foreign investors and the present situation of global markets in the wake of the coronavirus outbreak.

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