Five key factors that dragged the stock market lower on Monday

Frontline Indian benchmarks - the S&P BSE Sensex and the Nifty50 - lost ground in trade on Monday, amid a broad-based selling. The fall is in line with their Asian peers, which also traded with deep cuts. Volatility index, India VIX, jumped around 9 per cent to 33.55 levels, indicating increased volatility.

The S&P BSE Sensex ended 552 points or 1.63 per cent lower, while NSE's Nifty50 lost 159 points or 1.6 per cent to settle at 9,814.

The broader market, however, fared better. For instance, the S&P BSE Midcap index was down over 1 per cent whereas the S&P BSE SmallCap index ended flat.
 

Here's a list of 5 key factors that dragged the market lower on Monday.

A sharp rise in Covid-19 cases: A sharp jump in coronavirus (Covid-19) cases in India weighed on investor sentiment. India, data show, is witnessing a rapid increase in the number of Covid-19 cases. The latest available figures put the total infected in India at 333,008, and the death toll has crossed the 9,500-mark - making India the fourth-worst affected country in the world now.

According to a study by the Indian Council of Medical Research (ICMR), India is likely to witness Covid-19 peak in November-mid. The peak stage of Covid-19 in India has been delayed by the eight-week lockdown and has strengthened public health measures, and it may now arrive around November-mid when a paucity of isolation and ICU beds and ventilators can arise, the study says. READ MORE

Meanwhile,  the world is seeing over 100,000 fresh coronavirus cases daily, according to John Hopkins University. China, where the first Covid-19 case was reported, has recorded its highest spike in daily cases in two months. The global tally of coronavirus cases stands at 7,995,480, and 435,593 people have died from the disease so far.

Weak global cues: Asian shares stumbled on Monday and oil prices slipped as fears of a second wave of coronavirus infections compelled investors to ditch risky assets and rush to safe-havens. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 per cent. Japan's Nikkei faltered 0.7 per cent. Chinese shares, too, opened in the red with the blue-chip CSI300 index down 0.1 per cent, Reuters reported. Moreover, Dow Futures was trading around 900 points or over 3.5 per cent lower, suggesting a heavy sell-off in the US stocks when trading resumes later in the day.

Economic indicators: India’s industrial production, according to a report by Business Standard, contracted 55.5 per cent in April, the sharpest ever, as the Covid-19-induced lockdown almost froze economic activities. The Index of Industrial Production (IIP) had shrunk 18.3 per cent in March.

The government did not release the numbers, clarifying that the majority of industrial establishments had reported nil production, and cautioned that the numbers should not be compared with those of previous months. READ MORE
 

Meanwhile, inflation based on wholesale price index (WPI) contracted by 3.21 per cent in May, said a government statement on Monday. The Department of Promotion of Industry and Internal Trade (DPIIT) resumed releasing detailed wholesale price index (WPI) data after suspending it for a month. READ MORE

Financials take a hit: The sharp slide in markets was led by financial counters, with the Nifty Bank index plunging over 800 points or nearly 4 per cent. Nifty Private Bank index was down over 4 per cent, while the Nifty Financial Services index declined over 3.5 per cent to 9,753 levels. The Supreme Court (SC) is scheduled to hear the interest waiver case on June 17 and AGR case on June 18. The outcome of both these cases is likely to have a bearing on the financial sector, especially banks.

Technical factors: According to Dharmesh Shah, Head - Technical at ICICI Securities, domestic markets are in sync with global indices in terms of direction. Nifty's immediate support, he says, is at 9,700, which is a confluence of the last week’s low of 9,706 (held on a weekly closing basis), and 61.8% retracement of Friday’s sharp pullback (9,544 – 9,996), at 9,720.

"Structurally, over the past two decades we have seen two major corrections, where after more than 40% correction, index first witnesses sharp pullback (in CY-2001-02 it rallied 42% and in CY-2008-09 it rallied 44%) and subsequently enters in a corrective mode. Currently, we believe the index has entered a corrective phase post sharp rally of 38 per cent from March low of 7,511 and expect to extend declines in the weeks ahead," Shah says.