Bloodbath on Dalal Street: 6 Reasons Why Sensex Nosedived 1,939 Points Today

Fri, 26 Feb Closing

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Indian share markets witnessed a sharp sell-off today and ended deep in the red.

The selling dragged the benchmark Sensex lower by more than 2,148 points and made the Nifty trade below 14,500-mark. For the Sensex, it was the worst daily fall since May 2020.

At the closing bell, the BSE Sensex stood lower by 1,939 points (down 3.8%).

Meanwhile, the NSE Nifty ended down by 568 points (down 3.8%).

ONGC and Mahindra & Mahindra were among the top losers today.

SGX Nifty was trading at 14,524, down by 656 points, at the time of writing.

The BSE Mid cap index and the BSE Small cap index ended down by 1.8% and 0.8%, respectively.

On the sectoral front, banking stocks and finance stocks were among the hardest hit.

The banking sector and finance sector ended their day down by 4.9% and 4.6%, respectively.

US stock futures are trading flat today indicating a flattish opening for Wall Street indices.

The rupee is trading at 73.76 against the US$.

Gold prices are trading up by 0.5% at Rs 46,460 per 10 grams.

Here are Top 6 Factors Why Indian Stock Markets Crashed Today:

Weak Global Cues: Asian share markets witnessed huge selling after Wall Street's main indexes tumbled, following a steep rise in benchmark US Treasury yields.

The Hang Seng ended down by 3.6% while the Shanghai Composite slid 2.1%.

Rising Bond Yields: A jump in bond yields both in the US and India have unsettled investors. As per media reports, US Treasury yields touched their highest levels since the outbreak of coronavirus pandemic on expectations of a strong economic expansion and related inflation.

Not only in the US, but bond yields are also rising in many other top economies, including Japan.

Rising Covid-19 Cases: Covid-19 cases have started spiking in some regions of India, spooking investors who believed the crisis was all but over.

The daily rise in coronavirus infections in India was recorded above 15,000 after nearly a month taking the country's total tally of COVID-19 cases to 1,10,46,914, according to the Union Health Ministry data updated yesterday.

Rising Geopolitical Tensions: Rising geopolitical tension also weighed on the market sentiment globally. As reported by Reuters, US President Joe Biden on Thursday directed US military airstrikes in eastern Syria against facilities belonging to what the Pentagon said were Iran-backed militia, in a calibrated response to recent rocket attacks against US targets in Iraq.

GDP Data: Stock markets were also cautious ahead of the GDP data that is to be released today.

The NSO (National Statistical Office) will release gross domestic product (GDP) growth estimates for the third quarter (October-December) 2020-21 later today. Many market participants have placed high chances on India's real GDP growing at more than 0% in October-December 2020, marking a return to a positive trajectory after two-quarters of a deep slide.

Profit Booking: Apart from the above, losses were also seen as share market succumbed to profit-booking.

We will keep you updated on how these factors develop in the coming days and what effect they have on Indian stock markets. Stay tuned!

Speaking of the current stock market scenario, note that the BSE Sensex crossed the 52,000-mark last week on Monday for the first time. Sensex's P/E ratio is at a two decade high of around 36x.

Have a look at the chart below which shows Sensex P/E over the years.

So, should Sensex valuations at nearly two-decade high be a reason for you to abandon stock picking?

Here's what Tanushree Banerjee wrote about it in one of the editions of Profit Hunter:

• Sensex at 52,000 or higher should not change the way you buy stocks.
  
  You must look for only the most solid businesses that can confront all odds.
  
  And you must not compromise on margin of safety in valuations.
  
  A solid wealth building plan needs thorough research. You will also need a commitment to consistently invest in a few great stocks at the right times.
  
  There may be very few such stocks that are actionable but ones that do qualify could be your starting point.

In news from the IPO space...

MTAR Technologies, a precision engineering solutions company, is set to launch its initial public offering (IPO) for subscription next week on March 3, 2021.

Through this issue, the company looks to raise Rs 5.9 billion, at the upper end of the price band. The issue will close for subscription on March 5, 2021. The issue comprises a fresh issue of 21.48 lakh equity shares by the company and an offer for sale (OFS) of 82.24 lakh equity shares by promoters and investors.

The company has fixed the price band of the issue at Rs 574-575 per share of face value of Rs 10 each.

The Hyderabad-based company has precision engineering capabilities to build nuclear and pressurized water reactors, aerospace engines, missile systems, aircraft components and many such other critical components and assemblies.

MTAR supplies high-precision machine fabricated systems to DRDO Labs, Bharat Dynamics, HAL, BEL, etc., and other defence R&D.

In the calendar year 2021, MTAR Technologies would be the ninth public issue after Indian Railway Finance Corporation (IRFC), Indigo Paints, Home First Finance Company India, Stove Kraft, Brookfield India REIT, Nureca, RailTel Corporation of India and Heranba Industries.

Reports state that the recent government initiatives such as Make in India, India aiming to become an exporter in defense sector, rising budgetary allocations for defense and space sectors, provide a great opportunity to companies such as MTAR Technologies.

How the above IPO sails through remains to be seen. Meanwhile, stay tuned for more updates from this space.

In news from the macroeconomic space...

The Reserve Bank of India (RBI) in its report on currency and finance on February 26 said that the present inflation target of 2 to 6% is appropriate for the next five years to ensure price stability.

The observation is significant amid speculation that the government may ask the central bank to relax inflation targets to revive the economy.

"Threshold inflation above which growth is unambiguously impaired ranges between 5 and 6% in India, indicating that an inflation rate of 6% is the appropriate upper tolerance limit for the inflation target," the report said.

A lower bound of above 2% can lead to actual inflation frequently dipping below the tolerance band, while a lower bound below 2% will hamper growth, indicating that an inflation rate of 2% is the appropriate lower tolerance bound, the report said.

Last month, there were reports that the government was looking to raise the CPI-based inflation target under the monetary policy framework by a notch to 5%, with a tolerance level of plus and minus 2% from April 1 to give RBI more room to cut policy rates to boost growth in the economy.

We will keep you updated on all the upcoming news from this space. Stay tuned.

Moving on to stock specific news...

Nava Bharat Ventures was among the top buzzing stocks today.

Nava Bharat Ventures share price witnessed buying today after the board approved the proposal for buyback of fully paid up equity shares of face value of Rs 2 each for an aggregate amount not exceeding Rs 1.5 billion.

The board of directors on February 26 approved the buyback of fully paid-up equity shares of face value of Rs 2 each for an amount not exceeding Rs 1.5 billion, which is 5.05% and 3.94% of the total paid-up equity share capital and free reserves of the company, Nava Bharat said in an exchange filing.

We will keep you updated on all the developments from this space.

Speaking of buybacks, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

Speaking of stocks, India's #1 trader, Vijay Bhambwani talks about how you can profitably trade stocks, commodities, and currencies on the same day, in his latest video for Fast Profits Daily.

Tune in to the video below to find out more:

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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