Sensex crash! Rs 5.61 lakh crore of investor wealth wiped out in 2 days - 8 reasons why

The benchmark Sensex was pushed off a cliff in Monday’s trading session! It crashed over 900 points at one time during trading hours - it touched an intraday low of 38,605.48. The 31-scrip index left its over 39,500-levels, to close at 38,720.57 points, down by 792.82 points or 2.01%. On similar lines, even Nifty 50 faced bloodbath, as the index ended at 11,558.60, below by 252.55 points or 2.14%. What is noteworthy is that Sensex has tumbled in the last two trading sessions. From July 05 (Budget Day was on Friday) to July 08, a breathtaking over Rs 5.61 lakh crore worth of investors wealth has been wiped out. 

On Monday,  negative sentiment was powered by a number of factors and some major sectors like banking and auto came in for profit booking, while minimum public shareholding announcement in Budget 2019 also played a role. Even midcaps and small caps added to the woes, as investors continued to remove their money massively in these indexes. 

Punjab National Bank (PNB) caused the biggest churn in investor faith, as a new fraud has been detected - this comes in the wake of over Rs 15,000 crore fraud by jewellers Nirav Modi and Mehul Chowksi. Additionally, global peers also worked against the domestic markets.

Here’s a list of seven factors that impacted Sensex’s crash! 

1. Selling in S&P BSE Sensex Next 50:

This index which is India’s most tracked bellwether, plunged by a huge 640.87 points or 1.98% closing at 31,736.87. The index also touched an intraday low of 31,663.78. The impact was led by massive selling in PNB share price, as the bank became top loser by dropping 11% in 1 day. Other stocks like TVS Motor, Bank of Baroda, BHEL, Shriram Transport Finance, CONCOR, Edelweiss Finance Services, Motherson Sumi and RECL were among losers by tumbling between 3% to 5%. 

Gainers list involved stocks like Cummins India, DMart, Glenmark and Bharti Infratel by rising only 0.29% to 4%. 

2. Midcap stocks dragged down! 

Massive selling in banking stocks and others, led to S&P BSE Midcap slide by over 293 points down by 1.99% completing at 14,432.53. Intraday low of 14,393.94 was also touched. Stocks like Bank of Baroda, Canara Bank, Union Bank, HUDCO, NBCC Endurance, Adani Enterprises, Oberoi Realty and IDBI Bank were losers, by dropping between 4.50% to 10%. 

Explaining drop in midcap, Amar Ambani, President & Head of Research at Yes Securities said, “Hike in surcharge in the Budget will have an adverse impact on high-end consumption, as well as reduce the investible surplus of high-income individuals, whose money was the mainstay of mutual funds, PMSes and the midcap segment.”

3. S&P BSE SmallCap’s slide! 

Unlike midcaps, the smallcaps faced much higher heat from investors, as the S&P BSE SmallCap index ended at 13,794.53 down by 347.30 points or 2.46%. In fact, an intraday low of 13,758.03 was also clocked, resulting in over 400 points drop. Losers list involved stocks like BLS International Services, RattanIndia Infrastructure, Ruby Mills, Mindtree, Indiabulls Ventures,  Vikas EcoTech, DB Realty and JP Associates who plunged between 9.70% to a massive 20%. 

4. No love for Banking stocks:

Banking stocks were the least preferred stock on Sensex and Nifty both. The S&P BSE Bankex became the top loser on Sensex, after it finished at 34,370.46 down by a whopping 970.05 points or 2.74%. The index also touched an intraday low of 34,320.74. Here, shares of SBI, IndusInd Bank, Axis Bank, City Union Bank, Kotak Mahindra Bank, ICICI Bank, Federal Bank and RBL Bank plunged the most in the range of 1% to over 4%. 

Surprisingly, it was only Yes Bank shares which turned out to be the sole gainer on this index, by rising nearly 6%. 

5. Dampening of auto stocks:

Auto stocks have already been volatile since the time major automakers announced another June 2019 sales which was yet another subdued to weak performance. With investors faith bleak on domestic market, S&P BSE Auto took the second spot in losers list, by ending at 17,136.43 down by 555.83 points or 3.14%. Here, major auto companies like Hero Motocorp, Maruti Suzuki, TVS Motor, Apollo Tyre, Motherson Sumi, Tata Motors, Bosch, Eicher Motors, MRF, Balkrishna Industries, Bajaj Auto and M&M sliding below 1% to 6%. 

Also Ambani added, "Fears of pro-longed slowdown in consumption also caused sell-off in Autos and NBFCs, linked to consumption story.”

6. PNB’s fraud shock! 

When PNB’s Rs 15,000 crore fraud broke in 2017, it devastated the banking sector  as well as capital markets. Now, the bank has reported approximately Rs 3,805.15 crore fraud in Bhushan Power & Steel Ltd account. Notably, Bhushan Steel is also among the 12 identified defaulters in RBI’s list for insolvency. According to PNB’s revelation, it was known that Bhushan misappropriated bank funds, manipulated books of accounts in order to raise funds. 

On PNB’s new fraud, Ambani  said, “The market fall today was on account of concerns over future fund flow into the secondary market and scam revelation at PNB. News of Rs38bn fraud at PNB, brought back memories of the Nirav Modi scam and raised fresh worries of more such skeletons in the closet, leading to fall in PNB stock as well as in other public-sector banks.”

7. Budget’s minimum public shareholding proposal!

Finance Minister Nirmala Sitharaman in her Budget 2019 speech on July 05, proposed saying, “It is the right time to consider increasing minimum public shareholding in listed companies. I have asked SEBI to consider raising the current threshold of 25% to 35%."

In this regards, Ambani also pointed out, “Fears around squeeze in secondary market liquidity is also due to proposed higher public shareholding norms. I expect and hope for a clarification in some form, with regards to the surcharge and public shareholding in the coming days.”

8. Global Markets: 

According to Reuters, Asian shares were a sea of red on Monday after strong U.S. job gains tempered expectations the Federal Reserve will deliver a large rate cut, while the Turkish lira hovered near two-week lows on worries about central bank independence. The dour mood extended beyond Asia with the pan-region Euro Stoxx 50 futures opening 0.4% lower while Germany's DAX and London's FTSE slipped 0.5% and 0.3% respectively. E-minis for the S&P500 declined 0.25%.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 1.4%. Japan's Nikkei faltered 1%.

Additionally, Ambani said, “The increased surcharge also has a bearing on FPIs coming in through the Trust route and taxation of Cat-3 AIFs. This potentially reduces the post-tax attractiveness of India, vis-à-vis other markets, where such a high rate doesn’t exist.”

Just one day before the Budget, Sensex’s market capitalisation stood at Rs 1,53,58,075.53 crore which lowered to Rs 1,51,35,495.86 crore on July 05 and now ended at Rs 1,47,96,302.89 crore on Monday. This results in a loss of Rs 5,61,772.64 crore investors wealth on Sensex in last two days. One can say, the bears have clouded over investors faith.