Six reasons why Sensex tanked below 26000-mark

Prime Minister Narendra Modi's demonetisation drive as sent Indian stock markets in a tailspin with BSE Sensex falling below 26,0000-mark on Monday and NSE Nifty trading lower by over 1%, at under 8000 points. 

Markets are reacting negatively as demand pressure due to cash crunch may mean India's growth prospects to take a serious hit. Ambit Capital has already reduced India's GDP target for the current year to 3.8% and 5.8% for the next fiscal. CARE Ratings, too, has estimated a 0.5% impact on GDP due to demonetisation. 

At 2.16 pm, Sensex was trading at 27,751.13 down by 399.11 points or 1.53%, and that of Nifty was at 7,932.85 below 141.25 points or 1.75%. 

The 30-stocks index recorded 3 advances and 27 declines, while the 51-stocks index had 6 advances and 45 declines.

Top gainers on BSE were – Wipro trading at Rs 442.10 up by 1.14%, followed by Asian Paints at Rs 911.70 above 0.49% and Infosys at Rs 923 up by 0.35%. Also Tata Consultancy Services, Reliance Industries and Gail India were positive by trading in the range of 0.10% - 0.20%.

Losers on BSE were – Adani Ports at Rs 250.10 down by 4.10%, followed by State Bank of India at Rs 264.50 (4.06%), Tata Steel at Rs 371.80 (3.45%), Mahindra & Mahindra at Rs 1200.95 (3.07%), Tata Motors at Rs 456.80 (3.01%) and Maruti Suzuki at Rs 4821.20 (2.80%).

So what has made Sensex go down this far? Here are six reasons why Sensex has reached below 26000-mark.

Target Cut:  

Sensex faced selling pressure by investors after Deutsche Bank trimmed down target. On November 19, the bank stated that it has cut Sensex target by 8% to 25000 from its previous 27000-target.

Winter Session:

Constant disruption of the winter session of the parliament by political parties has also added to the market fall.  Congress and other opposition parties have insisted on a discussion on demonetisation under Rule 56. 

Slash in GDP growth:

BSE reacted over expected decline in the GDP growth further. Care Ratings revised its gross value added (GVA) estimates to 7.1 – 7.3% compared to previous 7.6% led by demonetisation process in India.

Care Ratings said, “Demonetisation is expected to have a significant effect on the economy, particularly on the GDP growth prospects as various sectors would tend to get affected differentially on this score.” It added, “Overall GDP growth would be affected by 0.3-0.5%.”

MidCap stocks:

Performance of Mid-cap stocks, were also among the factors that dragged the Sensex down. It declined by over 301.47 points or 2.50%, trading at 11,770.96. Among the total 84 scrips – nearly 77 scrips saw decline with just 7 advances.

Among losers were – 3M India at Rs 11,468.55 (5.78%), Oberoi Realty at Rs 261 (5.30%), Bajaj Finserv at Rs 2796.30 (5.05%) and Bharat Forge at Rs 864.50 (4.73%).

Small Cap stocks:

The S&P BSE Small Cap tumbled over 331 points or 2.79%, trading at 11,538.05.

From total of 782 stocks, 726 stocks declined, 50 moved up with 4 unchanged.  

Sector-wise performance:

Banking and Auto stocks were the major losers on BSE. S&P BSE Bankex was down by 699 points or 3.22% trading at 21,028.57, while the S&P BSE Auto index was below 643 points or 3.24% at 19,216.04.

Demonetisation is seen as a negative factor for auto sales. Vishnu Mathur, director general of Society of Indian Automobile Manufacturers (SIAM) on November 11, said, “About 70% of India’s auto sales are financed with loans. This means a large 30% of transactions take place using cash or other instruments in India. A reason why automobile sales could be impacted in the near term.”

Other sectors which also added to the Sensex’s negative volatility were - Metal index at 9782.20 (299 points or 2.97%), Capital goods at 13573.96 (290 points or 2.09%) and Healthcare at 14976.74 (230.26 points or 1.51%).