Did you see the rupee depreciating to 72.27 per US Dollar on September 3rd, 2019? On the same day, BSE Sensex collapsed to nearly 770 points, and the NSE Nifty closed down to over 225 points. A sudden downfall in the Sensex today is primarily due to the deepening economic slowdown in India and a never-ending global contention leading to panicky sell-offs.
The 30 share index, Sensex plunged 867 points on September 3rd, 2019 and ended at 769.88 points, or 2.06% drop, lower at 36,562.91. The top losers in the Sensex benchmark had ICICI Bank, Tata Steel, Vedanta, HDFC IndusInd Bank, Tata Motors, RIL and ONGC which fell up to 4.45% that very day.
Only two IT stocks —TechM, HCL Tech closed with small gains. Despite several efforts by the government to boost the economy, market sentiment was hit by weak macroeconomic data releases and deteriorating auto sales for August. Only 2 out of 30 stocks on Sensex and 2 out of 50 stocks on Nifty ended in the green.
Although, Sensex today, i.e., September 4th, 2019 closed 161 points up and has rebounded to recover. Do you think the weak sentiments of the investors due to the revelation of the official GDP data indicating slow growth of India to 5 percent in the first quarter of 2019-20 affected the equity markets? The major crash, that is, the BSE Sensex reached the lowest point of all times because of definitive reasons to worry about.
Here are five reasons that are plaguing the equity markets of India:
1.Weak GDP/Macroeconomic Growth
The most significant factor behind a weak investor sentiment is the GDP Data. The fact that India's growth has slumped to 5% in six years despite the efforts of the government to boost the economy is a shocker to most investors.
Even in recent times, the government announced several initiatives to augment the growth in the country for the long term. However, the growth rate has pulled a lot of criticism from the economists and the securities firms.
2. Weak Core Industries, Purchasing Managers Index (PMI) data
September 2019 started with a shock to the stock market with the release of the core sector data. According to the official data, the eight-core industries have been faced by a growth drop to 2.1% in July 2019 whereas, in July 2018, the combined growth of the eight core industries was 7.3%.
The main reason behind the drop is due to the reduction in coal, natural gas, refinery products, and crude oil. Every sector in the economy of India has contributed to the downfall of the stock markets and the GDP collectively. The manufacturing industry in India reached its lowest point in August 2019. PMI states that the manufacturing activity has decreased to 51.4% in August 2019, which happens to be the weakest since May 2018.
3.Rupee strikes 72.27 per dollar
The depreciation of the rupee against the dollar has enhanced the weak market sentiments and has spooked the investors to sell off the stocks. September 2019 began on a sultry note with a sharp fall in the rupee-dollar dynamic by going beyond the 72 per dollar mark. Investors pulled out their investments with the weak GDP data and the strengthening US Dollar perturbing the Indian rupee.
There is a fear that the economic slowdown is because of capital outflows, and this fear is weighing on the minds of the investors. The foreign portfolio investors (FPIs) have sold stocks worth ₹2,016 crore in the cash segment, according to the provisional data.
The domestic and foreign portfolio investors (FPIs) have taken on to a selling spree after being shocked by the official GDP data. Till the last week of August 2019, FPIs had withdrawn close to Rs 5,500 crore from the Indian equity market.
5.Auto & bank stocks are hit
The automobile and bank sectors have faced a drag, and that has also recently affected the stock markets. The automobile sector has had the slowest growth since December 2018. This has forced most of the stocks of the automakers like Tata Motors, Maruti Suzuki, Eicher Motors and many more in the equity market to be trading in the red.
August 2019 was a very gloomy month for the automobile companies as the sales numbers dropped by 16.58% and led to a significant decline. For the banking sector, the announcement of Nirmala Sitharaman regarding 10 PSBs to be merged into four entities shook the banking stocks. Shares of Punjab National Bank (PNB), Indian Bank, Oriental Bank of Commerce and Canara Bank fell sharply on Tuesday.
A cut in the recent macroeconomic data on GDP, core sectors, and auto sales are directed towards an intensified economic defeat in the country. There are global factors like the US-China trade war, which has triggered a fall in the worldwide equity markets.
New hiked tariffs on Chinese goods being sold in the US have affected the markets globally at the outset of September 2019. The Sensex today made a smart recovery on September 4th, 2019 to close 162 points higher, just a day after registering its biggest intraday fall in 2 months giving the investors hope and stronger market sentiment.
To know more about the story behind the falling GDP growth at 5%, click here.
- Saloni Parakh