Manic Monday! Here's what led to a stock market crash today

Barring shares of Dr Reddy's Labs, all constituents of the 30-pack index traded in the red

The domestic benchmark indices nosedived in Monday's session following a strong second wave of Covid-19 in the country, leaving the market bulls battered. 

An across-the-board selling resulted in a 1,469-point crash on the BSE barometer Sensex in intra-day trade. The index, however, recouped some losses and ended 883 points lower at 47,949 with HDFC twins, Reliance Industries and select banking counters among the worst drags. Barring shares of Dr Reddy's Labs and Infosys, all constituents of the 30-pack index traded in the red. 

Meanwhile, its NSE counterpart Nifty after shedding as much as 425 points ended with a 258-point cut at 14,359. High volatility marked today's session with India VIX settling 10.20 per cent higher at 22.48. 

The sell-off was equally bad in the broader markets as mid-cap and small-cap indices lost 2.1 - 2.4 per cent lower. Except Nifty pharma, all indices on NSE traded in the red. 
 

"The steady rise in test positivity cases and the steady decline in recovery rates are areas of serious concern. But, this negativity need not reflect fully in the market since the global clues are positive. The decline in US 10-year yield from the recent high of 1.75 per cent to 1.56 per cent presently is a major relief & support to markets," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Here are the key factors behind today's selloff:
 

Covid cases

The biggest single-day spike in Covid-19 infections in India once again spooked investors on Dalal Street, as they feared the impact of the same on economic and earnings growth following lockdown-like restrictions by most states to curb the spread of virus. In the last 24 hours, India clocked a record 2,73,810 Covid-19 cases, taking the total infections past the 15 million mark since the start of the pandemic. 

Earnings growth

The second wave of Covid-19 in India has cast a cloud over economic growth and earnings outlook going ahead, worrying investors.

The domestic markets have moved in a linear manner over the past one year amid expectations of strong earnings growth in FY21 and FY22. Analysts believe any negative surprises on the earnings front can again derail the recovery.

The trend was visible in shares of IT companies, which kicked off the earnings seasons last week. The shares of IT firms fared poorly on bourses after the Q4 performance of IT bellwethers TCS and Infosys fell short of market expectations.

"The health crisis India is going through and localised lockdowns and restrictions on economic activity warrant a market correction. The targets of around 11 per cent GDP growth and above 30 per cent earnings growth for FY 22 that the market had assumed pre-second wave are likely to fall short," cautioned Kumar.

GDP downgrades

As a resurgence in Covid cases poses risks to India's fragile economic recovery, it has forced leading brokerages to downgrade India's GDP growth projections for the current fiscal year to as low as 10 per cent, dampening market sentiment.

While Nomura has downgraded projections of economic growth for the fiscal year ending March 2022 to 12.6 per cent from 13.5 per cent earlier, JP Morgan now projects GDP growth at 11 per cent from 13 per cent earlier. UBS sees 10 per cent GDP growth, down from 11.5 per cent earlier and Citi has downgraded growth to 12 per cent. READ ABOUT IT HERE

FPI outflows

The above mentioned concerns were also visible among foreign portfolio investors (FPIs) who have pulled out a net Rs 4,615 crore from Indian markets in April so far. According to the depositories data, overseas investors pulled out Rs 4,643 crore from equities but invested Rs 28 crore in the debt segment. If they turn net sellers in April, that would be the first monthly selling since September 2020. Sell-off by FPIs often leads to sharp market correction.