Five reasons why the Sensex tanked over 550 points in trade today

Stock market came under heavy selling pressure on Thursday, even as the Reserve Bank of India (RBI) slashed the repo rate by 25 bps (basis points), as expected by markets in its June policy meet. 

Frontline index S&P BSE Sensex plunged as much as 602 points in the intraday session to hit a low of 39,481.15 with IndusInd Bank, YES Bank, State Bank of India (SBI), Larsen & Toubro (L&T) and Mahindra & Mahindra (M&M) losing in the range of 3 - 7 per cent. The 50-share index Nifty of the National Stock Exchange (NSE), too, tanked 191 points, or 1.59 per cent, to hit the day's low of 11,830.25.

Both indices, however trimmed their losses by close. While the S&P BSE Sensex ended 554 points lower at 39,530 levels, the Nifty50 lost 178 points to close at 11844 levels.

"We are bound for some correction in the short-term post the in-line measures of the RBI which was well-done, acknowledging the worries in the economy. No specific comment regarding the ongoing NBFC crisis was taken as a surprise while delay in monsoon added to the fear," said Vinod Nair, head of research at Geojit Financial Services.

Adding: "Now the ball is in the government’s court, market is eager to know the new reforms to sustain the rally which has got expensive. These patches of corrections will be near-term in nature, till the final budget, consolidation in oil prices and new measures will auger well for the market."

Here's a look at the key factors that dragged the markets lower on Thursday:

Financials drop post DHFL crisis: Investor sentiment turned sour after rating agencies Crisil, Icra and Care downgraded Dewan Housing Finance Corporation's (DHFL) commercial papers (CP), citing delays in debt servicing. Shares of the company plunged 15 per cent to Rs 95, hitting an over five-year low on the BSE in the intra-day trade. 

Flagging concerns over the development, global brokerage firm CLSA said the recent default of around Rs 1,000 crore by DHFL on interest payment to its debenture-holders can accentuate a contagion risk and expose Rs 1-trillion in borrowing to risk of default/haircuts. CLICK TO READ REPORT

Liquidity issues: No concrete decision was made in the RBI policy statement to tackle the liquidity crisis, which according to analysts, dented the risk appetite further. The RBI has set up an Internal Working Group to review liquidity situation, whose recommendations will only be known after about six weeks. 

"Markets continue to worry about the fate a lot of stressed NBFCs in the meanwhile and its impact on the general sentiments," said Deepak Jasani, head - retail research at HDFC securities.

GDP growth projection trimmed: The RBI lowered its growth forecast for the economy for 2019 - 20 while reviewing the monetary policy framework on Thursday. Weak global demand due to escalation in trade wars, the central bank feels, may further impact India’s exports and investment activity. The GDP growth projections for 2019-20 was cut to 7 per cent from 7.2 per cent, forecast in the RBI's meeting in April 2019.

Possibility of escalation in trade war: On the global front, concerns over trade tensions kept investors jittery. US President Donald Trump on Wednesday said 'not enough' progress was made in high-stakes US-Mexico talks, which if fail, will see Mexico facing five per cent tariffs on all its exports to the US starting on Monday, rising to as much as 25 per cent later in the year. Last week, Trump told Mexico to take a 'harder line' on illegal immigration or face import tariffs.

Global economic slowdown: The International Monetary Fund (IMF) chief Christine Lagarde said on Wednesday that escalating tariff threats were sapping business and market confidence, and could slow growth that is currently expected to improve next year. The IMF said current and threatened US-China tariffs could cut 2020 global gross domestic product by 0.5 per cent, or about $455 billion - a loss larger than G20 member South Africa's annual economic output. However, it doesn't see a recession in the offing, it said.