Explained: Why the Sensex fell sharply in morning trade, will the weakness continue?

Sensex, Nifty today: The domestic indices came under pressure on account of sharp rise in Covid cases over the weekend and growing concerns over states considering a more stringent lockdown, unlike what was perceived earlier.

For the third week in a row the Sensex at BSE fell by over 1,000 points on Monday as it got unnerved by the spike in Covid cases over the weekend. The benchmark Sensex fell by up to 1,470 points or 3 per cent to hit a low of 47,362 in the early trading hours on Monday after the Covid numbers surged unabated over the weekend and hit an all time high of over 2.6 lakh fresh cases on Sunday.

Even the rupee fell sharply by 47 paise or 0.63 per cent against the dollar to trade at 74.82 in the early trading hours on Monday.

Why the Monday blues?

While the Sensex had fallen around 1450 points or 2.9 per cent in the early trading hours on April, 5 (Monday), it fell by 1,480 points or 3 per cent on April 12 (Monday). This is the third Monday in a row when the Sensex has declined over 1000 points in the early trading hours. Market participants say that the sharp rise in Covid cases over the weekend hits the market sentiment Monday leading to a sharp decline Monday morning.

The domestic indices came under pressure on account of sharp rise in Covid cases over the weekend and growing concerns over states considering a more stringent lockdown, unlike what was perceived earlier. While Maharashtra has already announced a Janta curfew till May 1, even Rajasthan announced extension of weekend curfew for two weeks s the numbers rose. As other states are also considering more stringent measures there is a concern over the decline in economic activity and its impact on the recovery of the economy and GDP growth rates for FY’22.

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The sharp rise in Covid cases in India has come as a major concern over the last couple of weeks. While the fresh Covid cases was around 1 lakh on April 4 (Sunday), it rose to around 1.7 lakh on April 11 (Sunday) and it hit a new high of over 2.6 lakh yesterday.

In India, several states are now considering to go for a more stringent lockdown and the markets is concerned over its impact on the economic activity and GDP growth for the current financial year.

The continuing rise in Covid cases since beginning of March also had an impact on the industrial sentiment and India’s manufacturing sector activity weakened sharply in March, with the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipping to a seven-month low of 55.4 in March from 57.5 in February. This marks an indication for slowdown in the manufacturing sector due to restrictions on account of the fresh surge in Covid-19 pandemic cases and the situation is set to turn more challenging in April.

Will the markets remain under pressure?

The surge in Covid cases and shortage of healthcare infrastructure has emerged as a big concern and is impacting sentiments all around including the markets. Even as the finance minister reached out to industry association and leaders of India Inc on Sunday and reassured that there will not be a nationwide lockdown, market participants feel that the surge in numbers will derail the recovery process and will have an impact on the pace of recovery and growth of the economy. The fact that Covid is not a new unknown and vaccination is also happening at a brisk pace, there is some level of comfort as against the scenario a year ago.

In the near term, the market is worried over the pace of increase in cases the impact it may have on livelihood and the economy. Many feel that the markets will continue to remain under pressure until it sees a decline in the pace of increase or the daily surge starts declining over the previous day.

What should you do?

As markets have come under pressure and Covid numbers continue their surge, investors would be wise to not go for bottom fishing at this time as the weakness may continue till the time we see a trend of slowdown in the pace of Covid surge.

While mutual fund SIP investments should continue, investors can wait for direct stock picking as the decline in markets could provide an opportunity of buying good stocks at an attractive price over the coming weeks.

As for profit booking, investors must understand that this decline in markets is in reaction to surge in cases and it will recover as soon as the pace of surge declines. Wait for profit booking unless you are in urgent need of funds and you have no other avenues to dip into.

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