Sensex crashes over 1400 points
Sensex crashes over 1400 points (3.00%) amid growing concerns of rising Covid-19 infections and many countries imposing lockdowns once again. India’s other benchmark index, the Nifty crashed by 400 points (3.14%) on a day dominated by the bears. A new Covid strain found in the UK amid the Brexit talks had dampened the mood on Dalal street leading to this crash.
Movement of Indices
The Sensex had opened at 46,932, before moving up to 47,055 and then hitting a low of 44,923 before recovering by a bit more than 600 points to close at 45553. India’s Volatility Index (VIX) increased by over 24% to end the day at 23.19. The Nifty Pharma crashed by 3.79%, Bank Nifty by 4.1%, Nifty IT by 1.77%, and Nifty Auto by 4.62% among others. Nifty had opened at 13741, before hitting a high of 13,777 and a low of 13,131 before recovering almost 200 points to end the day at 13,328.
Sensex crashes – The reasons
Multiple factors contributed to the Sensex crash, key among them being:
- Discovery of a new strain of Covid: The UK government on Saturday announced that it had discovered a new strain of the virus. This strain is believed to be more infectious and transmittable than the existing strains. Following this announcement, many countries including India had imposed travel restrictions to curb people’s movement during the Christmas-New Year week.
- Profit Booking: The Sensex had rallied by more than 18% since late November, and the profit booking was well overdue. The rally was fueled by an inflow of funds from FII rather than on sound fundamentals. With the FY 2020-21 Q3 results coming up, many investors are hesitant to bet big on the results due to the anticipated impact of the holiday-shortened week.
- Weak Global Cues: With UK’s announcement, several travel bans were imposed. This had taken a toll on the European markets with the DAX and FTSE shedding over 2% each.
- Travel Bans: India along with Canada, Germany, France, Netherlands, Denmark, Belgium, and Italy have temporarily halted all flights to the UK, dampening the holiday mood.
Despite all the bad news, there was also good news in the form of the $900bn US fiscal stimulus. This fall will serve as an entry point to several who were waiting on the sidelines for a crash. A correction after a big rally is always a good sign. This is healthy for the markets as new money flows in and drives the indices higher.
Investors lost over ₹7 lakh crore due to the crash today!