Worst Sensex Fall in the shadow of Yes Bank and Global Market Meltdown


After witnessing its previous worst drop this Monday, India’s benchmark stock exchange SENSEX recorded its worst fall in history with a 2,900 point fall on 12 March 2020. This 2 year low comes amidst a global slowdown and the collapse of Yes Bank. Weak industrial demand, US-China trade war, Coronavirus, oil-price war, and a potential global recession seem to have contributed towards this vertigo-inducing fall.

Crux of the Matter

Global Stock Indices Fall Like Dominos
Central Banks worldwide are cutting interest rates to cope with the slow demand that Coronavirus scare is causing. US 10-year Treasury Bond yield continued to slip on Monday, 9 March 2020, and briefly touched an all-time low of 0.318%. As of today, it is hovering at around 0.80%. Theoretically, if you invest $100 for 10 years, then its value after 10 years would be only $100.80 at today’s rate. US Benchmark Index Dow Jones, in response to the Federal Reserve rate cut amidst virus scare, inversion of bond yield curve, and oil price war, plunged 2,000 points on Monday. The ripple effect cost Australia’s ASX 200 to plummet by 7.3%, worst since October 2008. Nikkei 225 of Japan, Hang Seng of Hong Kong, and Shanghai Composite of China fell by 5.1%, 4.2%, and 3% respectively.

Complete Coverage: US Benchmark Bond At Historical Low: Coronavirus Fear Or Anticipated Slowdown?

In recent times, stock of Boeing company has taken a hit as well. Adding to the woes of 737 MAX disasters and deteriorating fundamentals of business, some Boeing employees caught Coronavirus and the company stock that once traded above $300 is now below $200.

Recently, the Bank of England announced an interest cut of 50 basis points (1 basis point = 0.01%) from 0.75% to 0.25%. GDP data for the last three months show that UK’s economy has remained stagnant. Firstly, Brexit, and now the global slowdown accelerated by Coronavirus brought UK’s Financial Times Stock Exchange (FTSE) on the London Stock Exchange at a 4-year low.

The coronavirus outbreak will spark an economic downturn in Europe similar to the 2008 financial crash unless EU governments provide financial support for their economies.

– Christine Lagarde, President, European Central Bank

Thus, markets across the globe have been bearish. WHO has now officially declared COVID-19 as ‘pandemic’. With countries quarantining itself, trade & commerce may get punched in the face by a potential recession.

Complete Coverage: Coronavirus

SENSEX Slowdown Showdown – Worst Fall in History
On 12 March 2020, India’s broader market benchmark SENSEX slumped 2,900 points or 8% from the external market shock and internal issues of Yes Bank, and slowing GDP growth. This crash is the worst fall in terms of points in the Indian market. It eroded nearly Rs. 9 trillion of investor wealth. Stocks of airlines were brutally hit.

Bombay Stock Exchange SENSEX was at 41,500 point mark a month ago. However, the recent market collapse across the globe and the Yes Bank crisis have sent the Indian market into a downward spiral. It ended at below 33,000 point mark on 12 March 2020.

On Monday, 9 March 2020, SENSEX had its second-worst fall (then worst) as it lost 1,900 points in a single day. Markets across the globe were victims of Black Monday as Coronavirus fears continued to grow. Market sentiments were dubious also because of the ongoing Yes Bank crisis as ED interrogated Rana Kapoor, and raided several properties in connection with the corruption and bribery case involving Yes Bank and DHFL.

Foreign Institutional Investors (FIIs) were on a selling spree on Monday. They sold equities worth Rs. 3,600 crores and anchored the market further down.

Oil Conundrum
Oil prices fell as much as 30% due to the price war between Saudi and Russia. India has the opportunity to buy oil at a cheaper rate from Saudi and put a temporary fix in the growing Current Account Deficit (CAD). India’s inflation rate could get a positive adjustment if India buys crude oil at a cheaper rate.

However, when oil prices were this low in 2014-16, Indian government rather than passing on the benefit to the consumers increased tax and duties on Petrol and Diesel. From 2014 – 2019, it earned approximately Rs. 10 lakh crores from tax on fuel. Even if India decides to pass on the benefit, it is unlikely that the lower price would be reflected in the prices as fuel prices are decided on the basis of a 15-day trailing average.

Complete Coverage: Russia and Saudi Weaponize Oil Prices

Ambani’s Woes
Mukesh Ambani, owner of the Reliance Industries Limited has been losing wealth amidst slowing demand and oil price war. Reliance’s stock plummeted 8% after the Black Monday market shock. A month ago, its stock soared at Rs. 1,500, which closed at 1,059 on 12 March 2020, a 30% fall in a month.

Mukesh Ambani, Asia’s richest man lost his title to Jack Ma after the market eroded $5.8 billion of his net worth in a single day. Jack Ma, who is now Asia’s richest man with $44.5 billion wealth, may have hedged the slowing demand for e-commerce sales by the increasing demand for its cloud computing services.

Will the Indian Elephant be Immune?
Indian government and RBI have stepped up to provide immunity to the Indian market from the growing apprehension of recession worldwide. The bad memories of the 2008-09 global financial crisis have entered the Indian market as it officially entered bearish market today. However, India’s resistance and immunity to the financial crisis a decade ago was plausible.

The merger of Public Sector Banks is scheduled to come into effect from the next fiscal, i.e. 1 April 2020. Finance Minister Nirmala Sitharaman was to meet the heads of those banks and discuss the mitigation of disruption that customers may face in the backdrop of the Yes Bank crisis. The merger is aimed at improving the credit and deposit growth of the Public Sector Banks. Oriental Bank of Commerce and the United Bank of India will be merged into Punjab National Bank, making it the second-largest PSB after SBI. FM also announced that Yes Bank’s withdrawal cap is temporary.

In another landmark move, SBI removed the requirement of minimum balance in savings accounts. Earlier, urban and metro area customers were not penalized for a balance below Rs. 3,000. In semi-urban areas, customers could not have a balance below Rs. 2,000 and in rural below Rs. 1,000. It also announced that a flat 3.25% interest per annum would be applicable for balance up to Rs. 1 lakh and 3% for balance above Rs. 1 lakh.


SENSEX Crashes
Crash of 1865 – As per the Business Standard, India experienced its first stock market crash in 1865. Although the Bombay stock exchange had not yet been formed, Gujrati and Parsi traders often traded shares mutually at the junction of Rampart row and Meadows street. In the preceding years, speculation about the results of the American civil war had led to irrational increases of stocks of new Indian companies. Shares of the Back bay reclamation (face value Rs. 5,000) touched Rs. 50,000 and those of Bank of Bombay (face value Rs.500) touched Rs. 2,850. Money made from cotton was pumped into the stock market driving prices of stocks higher. Banks loaned money to speculators further fuelling the bull run and wealthy merchants like Premchand Roychand dispensed advice that led to ordinary people placing their bets on shares.

Crash of 1991 & 1992 – After the liberalization of India in 1991, the stock market saw a number of cycles of booms and busts, some related to scams such as those engineered by players such as Harshad Mehta and Ketan Parekh, some due to global events and a few due to circular trading, rigging of prices and the irrational exuberance of investors leading to bubbles that finally burst. On 28 April 1992, the BSE experienced a fall of 12.77% – its largest fall in history (in terms of percentage) due to the Harshad Mehta scam.

Crashes of 2007-08 – During the financial crisis of 2007–2008, the stock markets in India fell on several occasions in 2007 as well as 2008. In 2007, there were five sharp falls in the stock markets. On 24 October 2008, the BSE Sensex fell to 8701, a fall of 1070 points in a single day.

Crash of 2015 – On 24 August 2015, the BSE Sensex crashed by 1,624 points and the NSE fell by 490 points. Finally the indices closed at 25,741 points and the Nifty to 7,809 points. The reason given for this crash was given as a ripple effect due to fears over a slowdown in China, as the Yuan had been devalued two weeks ago leading to a fall in the currency rates of other currencies and the rapid selling of stocks in China and India.

Crash of 2016 – On 9 November 2016, crashed by 1689 points, believed by analysts to be due to the crack down on black money by the Indian government, resulting in franctic selling. The sensex nosedived by 6% to 26,902 and the Nifty dropped by 541 points to 8002. These were said to be due to the demonetization drive by the Modi government. More Info