Explained: Why did the Sensex crash over 1400 points today and what lies ahead?

Written by Sandeep Singh, edited by Explained Desk | New Delhi |

April 5, 2021 3:43 p.m.

The Bombay Stock Exchange’s benchmark Sensex fell 1,440 points or 2.9% in the early hours of trading on Monday, in line with a sharp rise in Covid cases in India and a drop in manufacturing PMI to an all-time low seven months. The decline in Indian markets came even as the major Asian indices were trading vigorously and rising between 0.5% and 2%.

Why have the markets declined?

Domestic indices have come under pressure due to a sharp rise in Covid cases and concerns about its impact on economic activity. As India on Sunday recorded its highest number of Covids on record, there are fears of a further increase in the number in the states and its impact on economic activity.

With a large industrialized state like Maharashtra announcing a weekend lockdown as an initial step and hinting at the possibility of stricter measures in the future, market participants have become cautious about the new impact of covid on the economy. and the pace of recovery.

The increase in Covid cases over the past month has also had an impact on industrial sentiment. Activity in India’s manufacturing sector weakened sharply in March, with the IHS Markit India Manufacturing Purchasing Managers (PMI) index falling to a seven-month low of 55.4 in March, from 57.5 In February. This marks an indication of a slowdown in the manufacturing sector due to restrictions due to the new surge in Covid-19 pandemic cases and the situation is expected to become more difficult in April. It also had a big impact on market sentiment.

How does the industry feel?

While there is a general feeling that the government will not go for a strict lockdown and that manufacturing activity may not be affected as it did in April and May of last year, it There is, however, growing concern about consumer sentiment and demand going forward.

For example, while auto sales figures have been strong in recent months, industry insiders are not confident about the future.

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Naveen Soni, senior vice president at Toyota Kirloskar Motors, said that while there is demand due to the preference for personal mobility, the future remains unpredictable due to the increase in Covid cases across the country . “The environment remains very unpredictable and everyone in the industry is trying to forecast demand and predict the future. The impact of increasing Covid cases is clearly visible in Maharashtra and some other states as there has been a slowdown in demand, ”Soni said.

Will the markets remain under pressure?

Market participants believe that since the foreclosure will not be as severe as it was in 2020, there may also be no market corrections as seen last year. . The fact that Covid is no longer a news unknown and that the vaccination campaign is proceeding at a steady pace, there is a sense of comfort in the market.

However, what worries the market in the short term is the pace of the increase in cases and the impact this may have on economic activity and consumer demand. “While the economy had started to get back on track, the new surge in cases could slow down the process of economic recovery and that’s what is hurting market sentiment,” said a fund manager with a mutual fund top-notch investment.

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