Domestic stocks witnessed a sharp decline in the afternoon deals on Tuesday with the benchmark indices falling around 2 per cent amid across-the-board selling. The S&P BSE Sensex nosedived as much as 726.13 points or 1.87 per cent to 37,929.89 levels during the session while the Nifty50 index on the National Stock Exchange (NSE) shed over 200 points or 1.85 per cent to 11,260 levels.
The indices, however, trimmed their losses at the end of the session. The Sensex ended at 38,305.41, down 362 points or 0.94 per cent, while the NSE's Nifty50 index ended at 11,359.90, down 115 points or 1 per cent.
Counters such as PSU banks, realty, and media fell like ninepins while the volatility guage India VIX jumped 14 per cent to 18.04 levels during the day. The Nifty PSU Bank index slipped over 6 per cent to 2,154.30 levels with all the 12 constituents declining. At close, the index stood at 2,207.45 levels, down 87 points or nearly 4 per cent.
The broader market was no different as the S&P BSE MidCap index slipped over 1.50 per cent to end at 13,886.42 levels while the S&P BSE SmallCap index closed at 12,958.97 levels, down 211 points or 1.61 per cent.
"We expect that weak macro data points as well as disappointing auto sales numbers may also weigh on the investor sentiments in the near term. We expect that the RBI monetary policy may provide further direction to the markets. We envisage a 25 basis points (bps) rate cut in the policy, however, the central bank’s outlook on inflation and growth would be a key monitorable," said Ajit Mishra, Vice President, Research at Religare Broking.
Further, global developments such as US-China trade war as well as crude oil price movement amongst rising tension between Saudi Arabia and Iran would keep the market participants on edge, Mishra added.
Here's a look at the key factors that dragged market lower on Tuesday -
Financials tumble: Stocks such as YES Bank and Indiabulls Housing Finance were in a free fall. YES Bank tumbled a whopping 30 per cent during the day. The stock has witnessed fresh round of selling after its promoter entities sold stake. Last week, YES Capital, one of the promoter entities of YES Bank, sold 1.8 per cent stake in the bank. That apart, Indiabulls Housing Finance continued to reel under pressure on concern over merger with Lakshmi Vilas Bank (LVB). The Reserve Bank of India (RBI) on Saturday initiated prompt corrective action (PCA) against LVB.
Further, sentiment also took a hit after Moody’s warned that banks in India risk seeing their capital severely depleted if there is a rise in corporate defaults.
“Indian banks are the most vulnerable because they have lower capital ratios, and their capital will be wiped out under our stress scenario,” Moody’s said, analysing banks in 13 Asia Pacific economies. READ MORE
PMC Bank crisis: That apart, deepening crisis at Punjab and Maharashtra Cooperative (PMC) Bank also hit investor sentiment. "The Indian equity indices witnessed sharp fall today following heavy selling in banking stocks due to rising fears of their exposure to troubled real estate/housing finance companies," said Ajit Mishra, Vice President, Research at Religare Broking.
Last week, the Reserve Bank of India (RBI) had restricted activities of PMC Bank for six months citing major financial irregularities, failure of internal control and under-reporting of its exposures under various off-site surveillance reports.
The Nifty Realty index plunged up to over 6 per cent to 242.95 levels. PMC Bank helped real estate developer Housing Development & Infrastructure (HDIL) pay off loans of other public sector banks (PSBs) under one-time settlement schemes, so that the promoters could retain control over the real estate company. READ MORE
Subdued auto sales numbers: Automakers continued to post disappointing sales figures for August. The country's largest carmaker Maruti Suzuki India (MSI) on Tuesday reported a 24.4 per cent decline in sales at 1,22,640 units in September. Homegrown auto major Mahindra and Mahindra (M&M) reported a 21 per cent decline in total sales at 43,343 units in September while Ashok Leyland reported a 57 per cent drop in domestic vehicle sales in September to 7,851 units from 18,078 units in the year-ago period.
Disappointing macro numbers: The country's manufacturing sector activity in September remained unchanged amid subdued demand conditions both domestically as well as externally, a monthly survey said on Tuesday.The IHS Markit India Manufacturing PMI was at 51.4 in September, unchanged from August and thereby posting its joint-lowest reading since May 2018. That apart, the eight core industries in August recorded a 0.5 per cent decline in output of coal, crude oil, natural gas, cement, and electricity.