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Here's what triggered Sensex's 1,145-point crash on Monday

Analysts on Dalal Street blamed valuations behind the correction in the market
Markets lost considerable ground yet again on Monday after a weak start and extended their losing run to the fifth day.

Weak global cues, rising bond yields, amid fears of Covid-19-led lockdown came to haunt the bulls on the Street. Meanwhile, elevated oil prices and stretched valuations also concerned investors as most chose to take the profit off the table and stay on the sidelines following a secular rally in the benchmark in nearly one year.

The BSE barometer Sensex plunged 1,145 points or 2.25 per cent to give up the 50,000 mark and ended at 49,744. Its NSE counterpart Nifty slipped 306 points or 2.04 per cent to 14,676.

With this, both the indices have shed over 4 per cent in the five days.

Index heavyweights, Reliance Industries, HDFC, TCS, ICICI Bank and Infosys were among the top Sensex drags. At the same time, ONGC was the best performer, up over 1 per cent.

India VIX, however, spiked 14.47 per cent to 25.47 ahead of the monthly expiry on Thursday.

Investors on BSE became poorer by Rs 4.09 trillion as the market cap of the listed firms on BSE crashed to Rs 199.96 trillion.

Here are the top factors behind the market crash:

- Weak global cues
Indices back home fell tracking mixed cues from global peers. Asian shares turned mixed as expectations for faster economic growth and inflation globally battered bonds and boosted commodities while rising real yields made equity valuations look more stretched in comparison.

MSCI's broadest index of Asia-Pacific shares outside Japan went flat while Japan's Nikkei recouped 0.8 per cent and South Korea 0.1 per cent, but Chinese blue chips lost 1.4 per cent. Meanwhile, S&P 500 futures dipped 0.1 per cent and EUROSTOXX 50 futures 0.3 per cent, while FTSE futures fell 0.7 per cent, indicating a weak start for European and US markets later today.

- Rising bond yields
A jump in bond yields both in India and in the US unsettled investors on Dalal Street. The government bond yields jumped to their highest level since August 27 while yields on 10-year Treasury notes have already reached 1.38 per cent, breaking the psychological 1.30 per cent level and bringing the rise for the year so far to a steep 43 basis points, reported Reuters.

"For an investor, it is imperative to know that rising bond yields are huge determinants of equity valuations. The taper tantrum of 2013 is one example that showed the relation between the two wherein a sudden rise in bond yields caused markets to slide as mass bond selling was witnessed. Bond yields are inversely proportional to equity returns and when bond yields decline, equity markets tend to outperform while when yields rise equity market returns tend to falter," explained Nirali Shah, head of equity research at Samco Securities.

- Spike in Covid cases
According to the Union Health Ministry, India reported an increase in active cases for the fifth day in a row. The total tally of Covid-19 infections surpassed 1.10 crore with 14,199 new infections being reported in a day, as per the data available on February 22.

Meanwhile Maharashtra, the state worst hit by the pandemic, is once again seeing a dramatic surge in the rate of infections with Pune district alone reporting over 1,000 fresh cases on Sunday. Following this, Chief Minister Uddhav Thackery's government banned political, religious and social gatherings and imposed a new lockdown in some areas. Going ahead, market participants will track the development in Covid cases and new lockdowns could temper market sentiment.

- Oil on a boil
The recent heating up of oil prices is another factor that is concerning investors back home as crude forms a major part of India's import and could have a bearing on the rupee and increase raw material costs for firms. Oil prices today rose as the slow return of US crude output cut by frigid conditions raised concerns about supply, just as demand recovers from the depths of the coronavirus pandemic. Brent crude was up 76 cents, or 1.2 per cent at $61.67 a barrel after gaining nearly 1 per cent last week. The US oil rose 74 cents, or 1.3 per cent, to $59.98 a barrel, having fallen 0.4% last week.

- Valuation concerns
Analysts on Dalal Street also blamed valuations behind the correction in the market.

"The markets had rallied a lot, so some amount of profit booking is happening in the market. The falls have accelerated over the past few days in the run-up to the F&O expiry on Thursday. Meanwhile, valuations have been expensive, having predominantly driven by flows, and are on the higher side," said Jyoti Roy, deputy vice-president at Angel Broking.

Meanwhile, G Chokkalingam of Equinomics Research believes that 90 per cent of the crash in the market is due to valuation concerns. "It is good to see this correction because if you don't have such periodic corrections, you will have a massive crash in the market," he added.

- F&O expiry
Given the near-term headwinds, investors also rushed to book profit ahead of the expiry of futures & options (F&O) contracts for the February series due this Thursday.

"On Friday, Nifty Call options for both weekly and monthly contracts saw highest open interest (OI) at 16,000 with highest OI added at 15,000. In Puts, 14500 was the highest OI strike in weekly with highest addition at 14200, and in monthly, 14000 strike had highest Put OI with highest addition at 14800," said a morning note from Geojit Financial Services.


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