5 reasons why the Sensex tanked 1,624 points on Monday

The markets suffered their worst intra-day fall in six years with the S&P BSE Sensex slumping nearly 1,624 points, while the CNX Nifty shed around 490 points to 7,809 levels.

Also Read: Sensex drops 1,624 points. Is it time to bottom-fish?

The fall in the mid-and small-cap segments was even worse, with the CNX mid-cap index tanking nearly 9%, while the CNX Small-cap index lost 10.6%. India VIX, a gauge of volatility, shot up a massive 64% to hit 28.13 levels.

“It has been a while since we have seen a fall of this magnitude in our equity markets. This fall has largely been in reaction to the global markets carnage, the second effect of which has been a weaker rupee. Global markets have crashed following weeks of reports regarding China’s low economic growth as its consumption story falters. This is in addition to other irritants such as Europe’s woes and a general slowdown in economies across the globe. The US rebound story too is yet incomplete,” said Jayant Manglik, President, Retail Distribution, Religare Securities.
 
Here are top five reasons why the Sensex fell 1,624 points:

1) China woes deepen; Asian markets tank: Chinese markets slumped again on Monday despite the authorities giving the pension funds to access the stock markets. Despite several measures to prop-up the economy, including yuan’s devaluation twice in August, have failed to stem the rout.

 

According to reports, pension funds in China will be able to invest up to 30% of their net assets in the country’s stocks, equity funds and balanced funds. The funds have assets of more than 2 trillion yuan ($322 billion) that can be invested, meaning about 600 billion yuan ($97 billion) could theoretically go into the stock market, reports suggest. CLICK HERE TO READ STORY

Shanghai Composite dropped nearly 9.5% to 3,203.57 levels in intra-day trade on Monday, down nearly 38% from its 52-week high level in June 2015. The other Asian markets – Hang Seng (down 5.5%), Nikkei (down 4.8%), Taiwan Weighted (down 5.1%) and Straits Times (down 4.5%) also suffered severe cuts on Monday.

2) Wall Street closes sharply lower: US markets ended sharply lower on Friday after growth in the US manufacturing sector slowed unexpectedly to its weakest pace in almost two years in August, according to Markit. The preliminary US Manufacturing PMI fell to 52.9 in August – its lowest since October 2013, from a final July reading of 53.8. Dow Jones industrial average tanked 530.94 points to 16,459.75, a loss of 3.1% for the day. The Standard & Poor's 500-stock index, a broader benchmark, dropped 3.2% and slipped below the psychologically important 2,000 mark and is now 7% below its recent peak. The Nasdaq, too, slipped 3.5% and is down nearly 10% below its latest high. It closed down 171.45 points, to 4,706.04.

3) Greece concerns resurface: Concerns regarding Greece resurfaced last week with the Prime Minister Alexis Tsipras quitting last week. Greece's president has formally given the conservative opposition a chance on Friday to form a new government after leftist Prime Minister Alexis Tsipras resigned, but the country appears almost certain to be heading to an election next month, reports suggest. The developments, according to reports, could jeopardise the country’s bailout package plans agreed earlier with the International Monetary Fund (IMF) and increase the chances of a Greece’s exit (Grexit) from the euro-zone.

4) Oil prices and the Rupee: Oil prices hit their lowest level in over six years with US benchmark West Texas Intermediate (WTI) for October delivery fell $1.04 to $39.41 while Brent crude for October eased 91 cents to $44.55. A much weaker-than-expected manufacturing report on Friday also added to concerns energy demand is also waning in China.

Rupee, on the other hand, slipped below the 66 levels against the US dollar for the first time in nearly two years, hitting 66.78 a dollar in intra-day trade. A strong dollar demand from importers and banks, and heavy losses in domestic equity markets weighed on the local currency, reports suggest.

5) FIIs withdraw: Foreign institutional investors have withdrawn Rs 5,781 crore from the Indian markets, according to the provisional stock exchange data till August 21, 2015. This compares with an investment of Rs 922 crore in July, data suggests. The move in August comes on the back of a developments across China, its impact on the emerging markets and a sharp erosion rupee's value, especially against the dollar. A dismal monsoon session of Parliament that saw the passage of key bills being stalled was also a dampener.