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Tuesday, April 20, 2021

Explained: Why did Sensex plunge 1,939 points on February 26?

Led by banking and finance stocks, the benchmark Sensex plunged 1,939 points to 49,099.99 and the NSE Nifty Index fell 568 points at 14,529.15 as investors sold off stocks across the board.

Written by George Mathew , Edited by Explained Desk
Mumbai | Updated: March 4, 2021 10:15:11 am
bse sensex, dalal street, share marketBSE in Dalal Street, Mumbai. (Express photo by Nirmal Harindran)

Domestic stock markets on Friday plummeted 3.80 per cent in line with the weak global trend triggered by a sharp rise in bond yields and the growing tension between the US and Iran. Led by banking and finance stocks, the benchmark Sensex plunged 1,939 points to 49,099.99 and the NSE Nifty Index fell 568 points at 14,529.15 as investors sold off stocks across the board.

What led to the sell-off in Indian market?

On Thursday, the US 10-year yield climbed to 1.614 per cent, the highest in a year. Concerns over inflation in the US is the reason behind rising of bond yields. The bond market is expecting the likely rise in inflation to push the US Federal Reserve to either lower monthly bond-buying or hike interest rates, an adverse factor for markets like India, which have been a major recipient of foreign inflows of late. This is despite the US Fed’s reassurance of keeping the low cost of money intact. The rising crude oil prices are also raising concern among the investors. “The increasing geopolitical tension between the US and Syria aggravated the selling. GDP data for the third quarter which is to be released today also added volatility in the Indian market,” said Vinod Nair, Head of Research at Geojit Financial Services.

The benchmark 10-year bond in India also rose to 6.22 per cent, up four basis points.

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What’s in store for Indian markets?

Markets will first react to the GDP data in early trades on Monday — March 1. Going ahead, the rising bond yields continue to remain a key concern for equity markets worldwide although the recent US Fed statements have been comforting. “On the domestic front, key data like auto sales numbers and manufacturing PMI and services PMI would also be on the radar. Indications are in the favour of further decline in the index and Nifty has next support at 14,400 and 14,200 zone. We thus advise using rebound to create short positions and prefer index majors over others,” said Ajit Mishra, VP – Research, Religare Broking Ltd.

Is the bull run over?

Although the markets have been witnessing volatile movements, analysts don’t expect the market to crash further. Indian markets have seen a stellar rally in the past couple of months due to strong foreign flows, improving macroeconomic fundamentals and corporate earnings growth. “The ingredients of a structural bull market remain intact for India. Such ebbs and corrections will provide opportunities for long-term investors to take advantage of volatility and accumulate quality businesses at reasonable valuations and price points,” said Devang Mehta, Head of Equity Advisory, Centrum Broking, said.

The market will gain momentum as the global market is expected to stabilise supported by maintaining accommodative monetary policy and a growing economy, according to Vinod Nair, Head of Research at Geojit Financial Services. In short, long-term investors should stay invested, said an analyst.

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