Benchmark indices nosedived today with the Nifty ending below 10,750 and the Sensex settling below 36,500. The Nifty Realty index shed a record 6% followed by heavy selling in metal, auto, and PSU stocks.
Amid a plethora of global and domestic headwinds spooking the markets, six factors that stood out to explain today’s fall.
1. Govt keeps mum on stimulus package
D-street has been pinning its hopes on a much-awaited stimulus package from the government. After days of hoping for some sector-specific sops, patience was lost as the Chief Economic Adviser possibly ruled out a major stimulus package.
On the topic, he said, “…have to be careful on the issue of a fiscal stimulus” and that India Inc. can't keep expecting the government to keep coming to the rescue of sectors when they are going through tough times.
2. Lack of clarity on FPI taxes
Sebi, on Wednesday, eased the regulatory and compliance framework for foreign portfolio investors (FPIs) by broad-basing their classification, simplifying the registration process, entry, and know-your-customer (KYC) norms in order to push investments. The new regulations were released following the Sebi's board meeting on Wednesday, which ended with collapsing 57 circulars and 183 FAQs regarding FPIs into a single circular.
Although the Sebi did its bit to boost FPI inflows, the market seeks clarity on the tax proposals for FPIs made in the budget and the government has not oblidged yet.
3. Falling rupee
The domestic currency fell 42 paise against the greenback yesterday amid sustained foreign fund outflows and a rise in crude oil prices, back to $60-levels. Today, the rupee hit its lowest level of 2019 at 71.97/$ mirroring the sharp fall in Yuan.
4. Global headwinds
Perhaps the biggest catalyst of them all, the global economy has been plagued with uncertainty over the last two years. The ongoing trade war seems far from over and took an ugly turn over the last couple of weeks when Trump imposed additional tariffs on China. China, in turn, said it would retaliate in a tit-for-tat reaction.
The Middle East, too, has been riddled with tensions involving Iran, Yemen, and Saudi Arabia, which are pushing up oil prices. Currencies are in turmoil in emerging markets, and political crises have gripped Hong Kong and Italy.
Bleak economic data from giants such as China and Germany have further spread gloom in the markets, resulting in escalating risk aversion among investors. Recession fears in the US have also been sending jitters across markets.
5. Economic slump trickling down to multiple sectors
India Inc. is not insulated from global headwinds and the trade war has definitely hit exports.
Further, the slowdown the industry has been experiencing is not limited to just the auto sector. The shadow banking sector is in a mess that will not clean itself up overnight.
Earlier this week, biscuit manufacturer Parle Products announced that it could lay off as many as 10,000 workers owing to falling demand, which underscores a much bigger problem of a sustained dip in consumer demand.
6. Finally, jitters ahead of the Fed Chair’s speech on Friday
The Fed Reserve in its FOMC minutes, yesterday, said that the rate cut in July was only a recalibration and should not be viewed as a series of rate cuts. However, the Fed Reserve remains flexible with regard to its monetary policy and will keep an eye on economic data going forward.
Stocks across Europe and Asia fell post this, as investors now look out for any signs of monetary policy easing in Jerome Powell’s speech on Friday.