Explained 5 Reasons of Sensex & Nifty Fall (19th July 2019)

Reasons : Why Did Sensex & Nifty Fall on 19th July 2019?

Introduction

In this article, we have explained 5 reasons of Sensex & Nifty Fall on 19th July 2019. On Friday, July 19, 2019, Sensex and Nifty have seen a big hit, dropped by 560 points and 177 points respectively.

Explained 5 Reasons of Sensex & Nifty Fall on 19th July 2019

What are the key reasons of this fall? Lets see the main reasons of Sensex & Nifty fall one by one :

1. Continuous FPI Outflow Due to Increased FPI Surchage

• Stock markets took a hit after Finance Minister Nirmala Sitharaman dashed hopes of any tweaks in the Finance Bill to ring-fence foreign portfolio investors (FPIs) from the effects of the “super-rich” tax proposed in the Union Budget 2019. Finance Minister has said “FPIs registered as trusts will have to pay the new tax surcharge. FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge in Budget 2019“.
• Thus, Heavy selloff by FPIs was witnessed after Finance Minister Nirmala Sitharaman, on thursday, dismissed the argument that the proposed hike in tax on the super-rich would spook foreign portfolio investors.
• Foriegn Portfolio Investors have pulled out more than Rs.5,000 crore from the cash segment of Indian equity markets so far in July because of ‘Super-rich Tax’ Concerns. There was already a nervousnesss among FPIs due to introduction of increased Surchage on FPIs in its Taxation in Budget 2019.

2. Weak Corporate Earnings – Q1 FY20 Results

• Corporate earnings for the June quarter (Q1 FY20) have also failed to impress investors. Q1 FY20 results of many companise were muted and didn’t met the market expectations.
• Several lenders like Yes Bank, RBL bank were flagging stress in their books. RBL Bank Ltd plunged 13.7% after the lender highlighted risks to its asset quality, despite reporting a 41% jump in quarterly profit.
• IT heavyweight stock, Tata Consultancy Services Ltd, which had released its Q1 FY20 financials also reported lower margins.
• Also, for Reliance Industries (RIL) the market was expecting the muted results due to the pressure on the consolidated margins. Investors were in sentiments that this pressure may impact the profitability of RIL considerably.

3. Asian Development Bank Revised India’s GDP TO 7% from 7.2% for FY2019-20

This Downward revision in India’s growth to 7% from earlier 7.2% for FY2019-20 by Asian Development Bank (ADB) also contributed to the FPIs selloff. Thus, it has also become a key reason for FPI outflow from the Indian Equity Market.

4. US Fed Rate Cut Expectation By Market

• According to the New York Fed President John Williams’s Statement, Federal Reserve officials signaled they are ready to lower interest rates by 0.25% point despite the recent surge in market expectations of 0.50% cut.
• Though there is a potential for additional reductions in Fed rates, Federal Reserve aren’t prepared for bolder action now, and thus can’t go for aggressive rates cut policy.
• An aggressive fed rate cuts can be a dampner in short-term, because of the concerns about :
  1. A slowdown in global growth
  2. An increase in trade-policy uncertainty and
  3. The risk of a more prolonged shortfall in inflation from the Fed’s 2% target
• As a result, the market has reacted negatively over the John Williams’s comment about Fed rate cut and the policy stance.

5. Slowdown in COnsumption & Demand

• Due to uncertainty in monsoons and below normal level rainfalls till the date, the rural income got impacted adversely. It is resulting into the lowered consumption as well as demand from the rural areas.
• Also, on a regional cumulative basis, spatial distribution has been deficient across India which could lower income in rural areas and hence lead to lower sales.
• Auto stocks were the worst sufferers due to this slowdown in demand. Mahindra & Mahindra dropped 4.4%, Eicher Motors 3.8%, Tata Motors 3.4% and Hero MotoCorp 3.3%. At the same time, NBFC stocks like Bajaj Finance and Bajaj Finserv dropped by 4.4% and 3.87% respectively.