Sensex scripts tragic Thursday, falls by 800 pts; 5 reasons why

Oct 04, 2018, 13:22 PM IST
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BSE Sensex is heading from one crisis to another and daily there is a massive loss to investors being reported. Investor wealth eroded by Rs 1.71 lakh crore just on yesterday's performance. What is worse, there seems to be no end in sight to this carnage and expectations are that the stock markets will keep on crashing. Today Sensex has plunged over 400 points in opening trade, this turned into 500 points in early trade and by noon it became 800 points. It fell to around 35,170 by 12:15 pm. 

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BSE Sensex

BSE Sensex

What is causing this problem for investors, both Indian and foreign, to pull out their money from stock markets and run to safe havens? A number of crises are brewing and together they have churned a massive backlash on the markets. (Image: Reuters)

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BSE Sensex: Hit by heavy selling

BSE Sensex: Hit by heavy selling

First of all, the heavy selling in markets is based on macro factors like weakening Indian rupee against the US dollar and it is showing no inclination to strengthen. It is hitting new all-time lows virtually on a daily basis, including today when it plunged by 44 paise to hit a new low of 73.77 against USD. On Wednesday it had plunged by 43 paise to breach the historic low of 73 level. The domestic currency closed at a record low of 73.34, down by 43 paise or 0.59 per cent at the interbank foreign exchange. In Intra-day trade, the rupee had crashed to its then all-time low of 73.42 per dollar yesterday.  (Image: Reuters)

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BSE Sensex: Crude Oil

BSE Sensex: Crude Oil

Secondly, soaring crude oil prices are wreaking havoc too. Oil breached the $85 per barrel mark, leading to huge outflows of cash. Rising crude oil prices have fuelled worries over capital outflows and widening Indian current account deficit. (Image: Reuters)

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BSE Sensex: RBI policy

BSE Sensex: RBI policy

Thirdly, with so much already going on, a wary RBI is expected to hike key repo rate on Friday by 25 bps too to ensure inflation does not spike! The chances of Reserve Bank of India (RBI) turning more hawkish in its monetary policy stance due to a rise in inflationary pressure has eroded investors' risk-taking appetite. (Image: Reuters)

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BSE Sensex: Liquidity crisis

BSE Sensex: Liquidity crisis

Fourthly, there is the liquidity crisis that is being faced by NBFCs. While this has abated to an extent, yet investors confidence has been dented in a big way. IL&FS is another company that has been dragging down confidence. (Image: Reuters)

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BSE Sensex: NPA

BSE Sensex: NPA

Fifthly, while NBFCs are a problem, their bigger brothers, the banks, too have been failing to rise above their own problems of bad loans. NPAs are a problem that are defying solution. To this has been added RBI's pro-active action against banks like Axis Bank and Yes Banks whose chiefs have been given marching orders because of their banks being involved in controversies. Then there is also the case of ICICI Bank whose chief Chanda Kochhar is facing various accusations that has caused her to be sidelined.  (Image: Reuters)

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