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Monday, May 10, 2021

Explained: Why Sensex crashed more than 1,700 points on Monday

Even last Monday, the Sensex had fallen around 1450 points or 2.9 per cent in the early trading hours.

Written by Sandeep Singh , Edited by Explained Desk | New Delhi |
Updated: April 15, 2021 9:15:46 am
bse sensex, dalal street, share marketBSE in Dalal Street, Mumbai. (Express photo by Nirmal Harindran)

As if following a pattern, the benchmark Sensex at the Bombay Stock Exchange crashed 1,708 points or 3.44 per cent in the trading hours on Monday to hit an intra-day low of 47,883 after the Covid-19 numbers surged unabated over the weekend. Even last Monday, the Sensex had fallen around 1,450 points or 2.9 per cent in the early trading hours. Even the rupee settled 32 paise lower at 75.05 against the US dollar on Monday.

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Why have the markets declined?

The domestic indices came under pressure on account of the sharp rise in Covid-19 cases over the weekend and growing concerns over states considering a more stringent lockdown, unlike what was perceived earlier.

The sharp rise in Covid cases in India has come as a major concern over the last week as the daily increase in cases rose from around 1 lakh on April 4 to around 1.7 lakh cases yesterday.

The surge in numbers globally has raised concerns worldwide. Indian markets fell in line with other major Asian markets. Nikkei in Japan, Hang Seng in Hong Kong and Shanghai Composite in China fell between 0.5 per cent and 1 per cent on Monday.

In India, several states are now considering a more stringent lockdown and the markets are concerned over the impact on economic activity and GDP growth for the current financial year.

Maharashtra, which saw a rise of over 63,000 cases and 381 deaths on Monday, is reported to be considering a two-week lockdown and that may have a big impact on the economic activity as the state is a big industrial hub of the country. Market participants have grown cautious over fresh surge in numbers and its impact on the economy.

The continuing rise in Covid cases over the last six weeks also had an impact on the industrial sentiment and 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 for 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.

Will the markets remain under pressure?

The fresh surge in cases has raised concerns all around. While market participants feel that the economy will not close down the way it did in April and May 2020, this second wave could derail the recovery process of the economy and delay a return to normalcy. There is growing concern over looming restrictions across states which are considering lockdowns and curfews.

The fact that Covid is not a new unknown now and vaccination is also happening at a brisk pace, there is some level of comfort as against the scenario a year ago.

In the near term, the market is worried over the pace of increase in cases the impact it may have on livelihood and the economy.

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What should you do?

As markets have come under pressure and Covid-19 numbers continue their surge, investors would be wise to not go for bottom fishing at this time as the weakness may continue till the time we see a trend of slowdown in the surge.

While mutual fund SIP investments should continue, investors can wait for direct stock picking as the decline in markets could provide an opportunity of buying good stocks at an attractive price over the coming weeks.

As for profit booking, investors must understand that this decline in markets is in reaction to surge in cases and it will recover as soon as the pace of surge declines. Wait for profit booking unless you are in urgent need of funds and you have no other avenues to dip into.

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