Home >Markets >Stock Markets >Sensex's worst day of 2019: Five reasons why investor wealth eroded by 3.3 tn
Markets are voicing their disappointment in the lack of anything in the budget for the consumer, said an analyst (Photo: Reuters)
Markets are voicing their disappointment in the lack of anything in the budget for the consumer, said an analyst (Photo: Reuters)

Sensex's worst day of 2019: Five reasons why investor wealth eroded by 3.3 tn

  • Markets have been witnessing a free fall ever since FM Sitharaman announced a slew of budget measures that spooked investors
  • The auto index tumbled to its lowest in over 3 years ever since the auto majors announced production costs

Investors' wealth on Monday got depleted by 3.39 lakh crore after the Sensex plummeted 793 points.

Intra-day, the 30-share BSE benchmark index fell sharply by 907.91 points to 38,605.48. It closed at 38,720.57, down 792.82 points, or 2.01%. Here are five plausible reasons why the markets have tanked considerably second day in a row. In the previous two sessions, the market capitalisation of BSE-listed firms plummeted 5,61,772.64 crore. The index had dropped 394.67 points on Friday. Monday was Sensex's biggest single-day loss this year so far.

Union budget overhang: In her maiden Budget Speech, Finance Minister Nirmala Sitharaman said it was the right time to consider an increase in minimum public shareholding from 25% to 35%.

According to traders, the Union Budget proposal on higher tax incidence for foreign portfolio investors and high networth individuals also continued to spook domestic investors.

"Today's market fall has been due to a combination of global and domestic factors. Globally, a positive payroll expansion ahead of estimations has led to a fear of anticipated Fed rate cut not coming through. Domestically, proposals in the Budget to increase the minimum public shareholding levels to 35% was a dampener along with a 20% tax on share buybacks," Pradeep Kesavan, senior vice-president, equity strategy, institutional equities, Elara Capital told PTI.

As many as 1,174 listed firms, including giants like TCS, Wipro and DMart, will have to offload promoter stakes worth about 3.87 lakh crore, a Centrum Broking report said.

From the 30-share pack, 27 companies faced selling pressure led by Bajaj Finance, ONGC, Hero MotoCorp and Maruti Suzuki India.

Widespread selloff: The selloff was widespread with 46 of the 50 stocks in the Nifty 50 index in the red, with Eicher Motors Ltd and Bajaj Finserv Ltd dropping the most.

"Markets are voicing their disappointment in the lack of anything in the budget for the consumer," Sunil Sharma, chief investment officer, Sanctum Wealth Management, told Reuters.

All the BSE sectoral indices ended in the red, with capital goods, realty, automobile, power, industrials, finance, banking indices falling up to 3.78%.

In the broader market, the BSE mid-cap and small-cap indices fell by up to 2.46%.

Heavy selling pressure was seen in auto stocks due to the absence of any conspicuous impetus in the Budget for the beleaguered sector. Hero MotoCorp was down 5.2%, and Maruti Suzuki by 5.1%.

Panic selling: Panic selling weighed in after the Punjab National Bank (PNB) reported a fraud of 3,800 crore by Bhushan Power and Steel, saying the company misappropriated bank funds and manipulated books of accounts to raise funds from the consortium lender banks, ANI reported.

PNB closed 11% lower at 72.80 per share while the State Bank of India was down over 4.1% at 355.25 apiece.

"The market fall today was on account of concerns over future fund flow into the secondary market and scam revelation at PNB (Punjab National Bank). Fears around squeeze in secondary market liquidity is also due to proposed higher public shareholding norms," YES Securities President and Research Head Amar Ambani told PTI.

Heavy selling was seen in PSU banks such as Bank of India, Union Bank of India and Canara Bank, which were trading over 8 to 10% lower.

Canara Bank, Syndicate Bank, Indian Bank and Bank of Baroda declined in the range of 5 to 8%, IANS reported.

Heavy selloff in global equities: Asian shares were broadly weaker after tracking Wall Street which fell from record highs last week. Shanghai Composite Index ended 2.58% lower, Hang Seng by 1.54%, Nikkei by 0.98% and Kospi tumbling 2.20%.

Investors turned their attention to the upcoming testimony from US Federal Reserve Chairman after a strong jobs report cast doubt on the pace of interest rate cuts.

Share sentiment was also dampened by US investment bank Morgan Stanley's decision to reduce its exposure to global equities due to misgivings about the ability of policy easing to offset weaker economic data, ANI reported.

"Today's market fall has been due to a combination of global and domestic factors. Globally, a positive payroll expansion ahead of estimations has led to a fear of anticipated Fed rate cut not coming through. Domestically, proposals in the Budget to increase the minimum public shareholding levels to 35% was a dampener along with a 20% tax on share buybacks," Pradeep Kesavan, senior vice-president, equity strategy, institutional equities, Elara Capital told PTI.

Auto stocks come to a screeching halt: The auto index tumbled to its lowest in over 3 years and settled 3.26% down. Hero MotoCorp Ltd fell as much as 6.06% to its lowest since September 2015, while Maruti Suzuki India closed at its lowest in over two years.

Hero MotoCorp, Maruti, Tata Motors and Bajaj Auto took a beating on reports that automakers have resorted to production cuts after declining sales.

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