Key factors that led to a market crash on Monday

The selling in the market was mostly broad-based, with only stocks from the information technology (IT) sector managing to hold their head above water

A record jump in the Covid-19 cases in the country which led to lockdown-like restrictions in the economically important state of Maharashtra spooked market investors on Monday. Besides, a weak macroeconomic print added fuel to the fire, further raising concerns about the pace and strength of the economic recovery.

Investors found some solace in firm global cues that helped contain further downside for the market.

Amid this backdrop, the BSE barometer Sensex tanked 870 points or 1.74 per cent to settle at 49,159. The 30-pack index had declined as much as 1,449 points in intra-day trade to a low of 48,581. Banks, financials, Reliance Industries and ITC were among the top Sensex drags.

Meanwhile, NSE's flagship index Nifty50 shut shop at 14,638, down 230 points or 1.54 per cent. The index had plummeted to 14,460 in intra-day today. 

The selling in the market was mostly broad-based, with only stocks from the information technology (IT) and metals sector managing to hold their head above water while the PSU bank stocks were the worst hit. The volatility index shot up over 6 per cent to 21.21 level.

"Over the next few days, markets would monitor as to how the Covid situation pans out in Maharashtra and also in other states, especially the ones where the cases is rising rampantly. April is likely to be highly volatile for the markets with Q4 earnings, rising Covid cases and higher bond yields among the factors that are likely to determine the trend," says  Hemang Jani, head for equity strategy, broking & distribution at Motilal Oswal Financial Services.

Here are the key factors that are weighing on market sentiment today:

Grim milestone for Covid cases

With 1,03,558 fresh Covid-19 cases, India recorded the biggest-ever daily surge, taking the case tally in the country to 1,25,89,067. Maharashtra remained the worst-hit state in the country and saw the highest-ever daily surge with 57,074 fresh infections on Sunday. Mumbai, India's financial capital, also saw the highest-ever single-day spike with 11,163 new infections, taking the city's tally to 4,52,445 cases.

Lockdown-like condition in Maharashrta

To contain the spread of Covid, the Uddhav Thackeray government announced the shutting of malls and multiplexes along with private offices, except those engaged in finance, insurance, banks, telecommunications, and essential services in Maharashtra for a month. A curfew will be in place during the night, and prohibitory orders issued under Section 144 will be in force during the day. From Monday, bars, and restaurants will be closed with only takeaways and parcel service to be allowed. READ IN DETAIL HERE.

Market experts blamed the strict lockdown-like conditions in the state as one of the biggest jolts to investor sentiments, leading to the market crash, as these restrictions can impact growth recovery, they say.

"The lockdown along with the severity of the lockdown is what's behind market fall today. These restrictions are a big blow to the smaller businesses at a time when they were just about recovering and getting back on track. Moreover, this could lead to the exodus of labourers from the state. If they go back now, I am not sure when they would return," said independent market expert Ambareesh Baliga.

Weak macro print

A weak PMI manufacturing print for March also elevated concerns on the growth front. Growth in manufacturing activities slowed to the lowest rate in seven months as increasing Covid cases hit demand, showed largely tracked IHS Markit purchasing managers' index (PMI). PMI fell from 57.5 in February to a seven-month low of 55.4 in March. In the PMI lexicon, a reading above 50 means growth and the one below 50 shows contraction. Employment declined in March, taking the current sequence of job shedding to a year, according to the PMI report, based on the survey of 400 manufacturers.

Spike in bond yields

A spike in US bond yields also dented market mood on Monday. The two-year US Treasury yield rose to 0.186%, near its eight-month peak of 0.194 per cent touched in late February. Yields on longer-dated bonds also rose, with 10-year notes at 1.725 per cent in Asia on Monday, extending its rise that began on Friday after the job report, Reuters reported.

A spike in bond yields doesn't bode well for emerging markets like India as they lead to FII outflows.