The BSE Sensex posted its biggest single-day fall in four months after investor sentiment turned sour on the Federal Reserve’s dire assessment of the US economy and rising Covid-19 infections forcing many countries to re-enforce restrictions.
The Sensex plunged 1,115 points, or 3 per cent, to end at 36,554, its lowest close since July 10 and the biggest drop since May 18.
The Nifty fell 326 points, or 3 per cent, to end the session at 10,805.
US Federal Reserve Vice-Chair Richard Clarida said on Wednesday the US economy remained in a “deep hole” of joblessness and weak demand and called for more stimulus measures from policymakers.
Experts said the comments dashed hopes of a swift economic recovery. Also, many feared with the US election around the corner, the administration would not be able to provide a strong stimulus package.
“The Fed virtually pleading with Congress for a stimulus has worsened sentiment. The dollar strengthening has taken away expectations of money flows in the short term. The US election will bring its own volatility. Fears of a contested outcome will continue to keep investors in tenterhooks,” said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.
The benchmark indices have declined 7 per cent each in the past six trading sessions.
“The markets were running on liquidity and the best-case scenario of Covid-19 being contained and a quick recovery happening. Events over the last few weeks have shaken this assumption. The markets will find the bottom only when Covid cases stabilise,” said U R Bhat, director, Dalton Capital India.
The dollar held around a two-month high against major global currencies. A rising dollar is seen to be bad for emerging market flows.
Overseas investors pulled out Rs 1,885 crore from domestic equities on Wednesday, taking their four-day selling beyond the Rs 8,000-crore mark.
Another factor weighing on the market was the uptick in Covid-19 infections. Many countries, including the UK, France, Spain, and the Netherlands, are seeing a re-emergence of Covid hot spots, which might lead to fresh curbs on movements and businesses.
India reported 86,508 cases in the past 24 hours, close to 100,000 cases every day.
At present India has the second-highest number of Covid cases globally, after the US.
The growing uncertainty regarding economic recovery in India and ambiguity on the extent of GDP decline are worrying investors. Reports suggest the finance ministry is reassessing its earlier optimism about a V-shaped recovery as people are spending less.
Experts said the markets were able shrug off the economic reality due to the stimulus measures provided by the developed countries, particularly the US. Experts said lack of further stimulus packages would be akin to lifting interest rates, which would create turbulence for the equity markets.
On Tuesday Jay Powell, chairman of the Federal Reserve, warned Congress the US economic recovery would suffer if lawmakers failed to pass a new fiscal stimulus package.
Investors and policy analysts expected Congress and the White House would agree on a new fiscal package, in addition to the $3 trillion approved at the start of the pandemic. But differences over the size and detail of a deal have led to a stalemate.
The market breadth was negative with the number of declining stocks being 2,064 and those advancing 583.
All the Sensex components barring one ended the session with losses. IndusInd Bank was the worst-performing Sensex stock and ended with a loss of 7.1 per cent. Bajaj Finance and Mahindra & Mahindra fell 6.6 and 6.4 per cent, respectively.
All the BSE sectoral indices ended in the red. IT and tech stocks fell the most, and their gauges tanked 4.5 per cent and 4.3 per cent, respectively.