From the 30-share basket, 28 scrips suffered losses (Photo: Reuters)
From the 30-share basket, 28 scrips suffered losses (Photo: Reuters)

Five reasons why investor wealth plunged a staggering 2.5 tn on Tuesday

  • Declining auto sales data and lower-than-expected Q1FY20 GDP growth left investors nervous
  • Public sector bank stocks also ended in significantly lower after the government announced the merger of 10 state-run lenders into four

New Delhi: Investor wealth dropped 2.55 lakh crore on Tuesday following a sharp plunge in the equity market as investor sentiment went for a toss amid concerns related to economic crisis and trade issues.

The BSE benchmark Sensex tumbled 769.88 points, or 2.06%, to close at 36,562.91.

Led by the sharp drop in the equity market, the market capitalisation of BSE-listed companies tanked 2,55,585.56 crore to 1,38,42,866.10 crore. From the 30-share basket, 28 scrips suffered losses, led by ICICI Bank, Tata Steel, Vedanta, HDFC, IndusInd Bank and Tata Motors falling by up to 4.45%. Over 200 stocks were at their 52-week low in Tuesday's trade.

A host of factors, primarily domestic, have sent stocks tumbling in today's trade.

Auto sales data: Double-digit decline in auto sales in August meant the sector continued to reel under one of the worst slowdowns in its history.

Lower-than-expected GDP growth: The sharp fall in the Q1 GDP growth to 5% and the weak core sector growth are the key factors that have caused a fall in the markets as it opened after a long weekend. Official data released after market hours on Friday showed that India's GDP growth slipped to an over six-year low of 5% in the June quarter of 2019-20, hit by a sharp deceleration in manufacturing output and subdued farm sector activity.

Additionally, the country's manufacturing sector activity declined to its 15-month low in August, owing to slower increases in sales, output and employment, the IHS Markit India Manufacturing Purchasing Managers' Index showed.

Growth of eight core industries also dropped to 2.1% in July, mainly due to contraction in coal, crude oil and natural gas production, according to a government data released on Monday.

"Markets have reacted to weak auto sales data, lower than expected GDP growth number for Q1FY20 indicating that slowdown is more pronounced thus demanding for policy measures on both monetary and fiscal side. The recent measures taken by the Ministry of Finance would help mitigate the risk but more is expected to reverse the trend.

"News flow from global markets is not conducive either; US-China trade conflict has reached a new high with both the nations continuing to talk but at the same time imposing an additional tariff on goods imported from the other nation," Arun Thukral, MD & CEO, Axis Securities told PTI.

PSU bank stocks fall: Public sector bank stocks also ended in significantly lower after the government announced the merger of 10 state-run lenders into four.

It gives a positive signal to investors that the government is not just focusing on recapitalising the bank, but also in improving the governance in the public sector banks, experts said.

However, the merger will still be painful as a result of the geographic and cultural diversity of the merging entities, they added, PTI reported.

Stocks of Punjab National Bank plunged by 8.55% to close at 59.40 per share. Oriental Bank of Commerce edged lower by 9.6% to 66.40 while Canara Bank traded 10.6% lower to trade at 197.20 per share.

Nifty PSU bank dropped by 4.87% to 2,353.80.

Rupee falls 97 paise: The rupee on Tuesday dropped sharply by 97 paise to more than nine-month low of 72.39 against the US dollar as heavy sell-off in the domestic equity market, weak macro environment and a stronger greenback kept investors edgy.

The Indian currency came under pressure after official data released on Friday showed that India's GDP growth fell to an over six-year low of 5% in the June quarter.

Angel Broking Research Analyst Vaqarjaved Khan told PTI, "Rupee is likely to depreciate towards 73.5 by the end of September’19 if the trade war escalates further between US and China and outflows from Indian equity market continues."

“A few negatives are weighing on the rupee -- not only the GDP data but also a move higher in USD/CNH and weaker equities," Dushyant Padmanabhan, a forex strategist at Nomura Holdings Inc. in Singapore told Bloomberg.

US-China trade war: "The raging tariff war between the US and China, and the likely sluggishness in the economic fortunes of economies around the world have also been behind the rot in the markets," Joseph Thomas, Head of Research - Emkay Wealth Management told PTI.