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Tuesday, April 20, 2021

Explained: Why did Sensex crash 1,400 points on Monday, and what lies ahead?

The fall in Indian markets came even as the major Asian indices were trading strong and were up between 0.5 per cent and 2 per cent.

Written by Sandeep Singh , Edited by Explained Desk | New Delhi |
April 5, 2021 3:43:47 pm
bse sensex, dalal street, share marketBSE in Dalal Street, Mumbai. (Express photo by Nirmal Harindran)

The benchmark Sensex at the Bombay Stock Exchange fell by up to 1,440 points or 2.9 per cent in the early trading hours on Monday in line with a sharp rise in Covid cases in India and a decline in manufacturing PMI to a seven-month low. The fall in Indian markets came even as the major Asian indices were trading strong and were up between 0.5 per cent and 2 per cent.

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Why have the markets declined?

The domestic indices came under pressure on account of a sharp rise in Covid cases and concerns over its impact on economic activity. As India recorded its highest ever Covid numbers on Sunday, there is fear of further rise in numbers across states and its impact on the economic activity.

With a large industrialised state like Maharashtra announcing a lockdown over the weekends as an initial measure and hinted possibility of more stringent measures going forward, market participants have grown cautious over the fresh impact of covid on economy and the pace of recovery.

The rise in Covid cases over the last month also had an impact on industrial sentiment. India’s manufacturing sector activity weakened sharply in March, with the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipping to a seven-month low of 55.4 in March from 57.5 in February. This marks an indication of a slowdown in the manufacturing sector due to restrictions on account of the fresh surge in Covid-19 pandemic cases and the situation is set to turn more challenging in April. This also had a big impact on the market sentiment.

What does the industry feel?

While there is a general sense that government will not go for a stringent lockdown and manufacturing activity may not get impacted as it did in April and May last year, there is, however, a growing concern over consumer sentiment and demand going forward.

For example, while the auto sales numbers have been strong over the last few months, industry insiders are not confident about the future.

Naveen Soni, Senior VP at Toyota Kirloskar Motors, said that while there is demand on account of preference for personal mobility, the future remains unpredictable because of the rising Covid cases across the country. “The environment remains very unpredictable and everyone in the industry is trying to foresee demand and predict the future. The impact of rising Covid cases is clearly visible in Maharashtra and some other states as there has been a softening in demand,” Soni said.

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Will the markets remain under pressure?

Market participants feel that since lockdown now will not be as severe as it was in 2020, there may also not be market corrections as seen last year. The fact that Covid is not a new unknown anymore and with the vaccination drive happening at a brisk pace, there is a sense of some comfort within the market.

However, what the market is worried about in the near term is the pace of increase in cases and the impact it may have on economic activity and consumer demand. “While the economy had started to come back on track, the fresh spike in cases could slow down the economic recovery process and that is what is hurting the market sentiment,” said a fund manager with a leading mutual fund.

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