Sensex crashes 900 points in a week, 6 reasons why; is this a sign of correction?

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Updated: December 1, 2017 4:57:42 PM

Sensex has nosedived nearly 900 points over this week. We take a look at 6 reasons which led to the bloodbath at Dalal Street this week.

Earlier yesterday, Sensex plunged as many as 453 points. (Image: Wikimedia Commons)

Sensex has nosedived nearly 900 points over this week. A 900-point drop implies nearly a 3% drop in Sensex, the question arises: Is this a beginning of the correction in stock markets. Out of the 891.5 points slump in Sensex from Friday last week, most of it came in just last two days, as yesterday the index lost 453 points in choppy trade ahead of GDP growth data. Sensex shed 316.41 points or 0.95% on Friday to close at a 12-day low of 32,832.94. During the day, 30-share barometer Sensex shaved off as much as 351.57 to hit a 12-day low of 32797.78. Earlier yesterday, Sensex plunged as many as 453 points. We take a look at 6 reasons which led to the bloodbath at Dalal Street this week.

FPI’s exit pressure

Foreign investment has always been significant for Indian stock markets. Over this week FPIs (foreign portfolio investors) remained on a sell-off stance. Since Friday last week, FPIs sold shares of worth Rs 3,200.19, til Thursday, as per the provisional data released by the stock exchanges.

North Korean tensions

Earlier this week, after 2 months of silence and peace, North Korea fired its most powerful missile. On Wednesday, Indian stock markets traded range bound through the day as a gloomy cloud of fear stayed among the investors. North Korea announced that they were successful in test launch of the intercontinental ballistic missile (ICBM) on Wednesday. Stock markets around the world held back as experts expected that North Korea will continue with its weapons program. “The missile was launched from Sain Ni, North Korea, and travelled about 1000 km before splashing down in the Sea of Japan, within Japan’s Economic Exclusion Zone (EEZ),” Associated Press said in a report.

Fiscal deficit disquietness

Earlier on Thursday, government’s budget value was announced which indicated that fiscal deficit has widened during the first seven months (April-October) 96.1% of the budgeted target for the FY 2017-2018, mainly due to lower revenue realisation and rise in expenditure. In absolute terms, the fiscal deficit — the difference between expenditure and revenue — was Rs 5.25 lakh crore. The government aims to restrict the deficit to 3.2% of GDP in the current fiscal as against 3.5% in 2016-17. In absolute terms, 3.2% deficit for the current fiscal works out to nearly Rs 5.47 crore.

Caution over GDP growth

On Thursday, Indian equities were also under pressure of uncertainty over GDP growth data. However, India’s GDP growth sharply rebound to 6.3% in fiscal second quarter July-September from a three-year low in the first quarter, as businesses sprung into economic activity ahead of a condensed festive season and accelerated production to build inventory after the implementation of GST. India’s GDP growth in the first quarter (April-June) fell to a three year low at 5.7% according to Central Statistics Office data showed.

F&O expiry 

It is observed past that the last Thursday of every month — expiry of derivative contracts — steer down the stock markets a little, this week it coupled with other factors too. The settlement of November F&O series and offloading of positions by participants as today being the last trading session of November series contracts in the derivatives segment pulled the indices down.

Sell off in blue-chips

As stock markets digested all these factors, investors continued the profit-booking move a heavy selloff in the blue-chip stocks. Since today morning up till 11:00 am, markets traded with a marginal upside. But very soon, equities turn red and then extended losses in the late afternoon trade. The stocks such as Adani Ports (down 3%); Bajaj Auto (down 2.99%); Bharti Airtel (down 2.74%); Sun Pharma (down 2.59%); State Bank of India (down 2.54%); Dr Reddy’s (down 2.44%) were the major laggards on Sensex today. The stocks of heavyweight companies such as Reliance Industries, Infosys, HDFC, SBI, ICICI Bank, HUL, Airtel, Sun Pharma, Bajaj Auto contributed the most in the Sensex decline. Collectively these 9 stocks alone washed off about 220 points out of the 316-point dive.

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