Sensex Fall of 770 points (3rd September)| Key Driving Factors

Subdued Macroeconomic Indicators Dragged the Stock Market Down

Introduction

BSE Sensex fall of 770 points on Tuesday, 3rd September 2019, was mainly due to the subdued macroeconomic indicators including weak GDP and lower PMI data released.

Sensex Fall of 770 points (3 September 2019)| Key Driving Factors

On Tuesday, 3rd September 2019, domestic equity markets BSE Sensex and NSE Nifty were dragged down by the negative sentiments of the investors. BSE Sensex fall of 770 points to 36,563 was seen, while NSE Nifty ended at 10,798, down 225 points.

Here are the key driving factors that dragged the equity markets down over almost 2%.

1. Subdued Q1 GDP Growth

• According to the official GDP data released on 30th August 2019, India’s GDP growth for April-June quarter is slowed to 5% from 5.8% in previous March quarter. GDP growth rate slumped for the fifth consecutive quarter to hit 5%, the weakest in last 6 years.
• Market sentiment got impacted after the lower than expected GDP number, indicating the economic slowdown is more penetrating. Boost in the investments by government , coordinated monetary and fiscal policy actions are needed to for the revival of the subdued economy.

2. Core Industries Slowdown and Weak PMI Data

• According to the official core sector data released on Monday, 2nd September, the growth of eight core industries dropped to 2.1% in July. The growth was slowed down mainly due to a contraction in coal, crude oil and natural gas production. The combined growth of the eight core industries was at 7.3% in the respective period last year.
• Also, Nikkei Manufacturing Purchasing Managers’ Index (PMI) of India declined to 51.4 in August from 52.5 in July. The country’s manufacturing sector activity declined to its 15-month low in August, the lowest since May 2018.

3. Falling Rupee

• Free-fall of Indian Rupee was also a key determining factor for weak stock market sentiments. On Tuesday, the Indian currency fell sharply by 64 paise to 72 mark against the US dollar.
• The combined effect of weak macroeconomic data and strengthening of the US dollar has deteriorated the rupee’s value. As a result, negative stock market sentiment contributed to the rupee’s difficulties since investors rushed to pull out capital.

4. FII’s Outflow

• Weak macroeconomic data and sustained outflows by foreign portfolio investors (FPI).
• Overseas investors offloaded stocks worth a net of Rs.5,920 crore in the domestic market in August even after the government rolled back enhanced tax surcharge on FPIs. In July, they had pulled out a net of Rs 2,985.88 crore from Indian stocks.

5. Weak August Auto Sales Data and PSB Merger Announcement

• Most of the Auto stock traded in the red following weak auto sales numbers for August. Tata Motors, Eicher Motors, Mahindra & Mahindra, Ashok Leyland and Maruti Suzuki slipped up to 2.61%. While Maruti reported a 33% drop in August sales at 1,06,413 units, sale of passenger vehicles at Tata Motors fell 58%.
• Banking stocks also fell significantly after Nirmala Sitharaman had announced the merger of 10 PSBs into four entities. Shares of Punjab National Bank (PNB), Indian Bank, Oriental Bank of Commerce and Canara Bank fell sharply on Tuesday.