NEW DELHI: Bears were in total control of proceedings on Dalal Street in Tuesday’s trade as escalating tensions between US and China and declining sales due to fresh round of Covid restrictions worried investors.

The 30-share flagship BSE Sensex plunged 660 points to 36,033 while broader NSE Nifty tumbled 195 points to 10,607. Bank, auto, financials, media and metal stocks, which surged in recent rally, were under heavy pressure.

HDFC twins were the biggest drags on bluechip indices, followed by Reliance Industries and private bank trio of ICICI Bank, Axis Bank and Kotak Mahindra Bank.

“Markets witness sharp sell-off today with financials bearing the greatest brunt, on the back of weak global cues, and concerns with regard to rising Covid-19. Technically too, markets are trading closer to key resistance levels, so profit-booking is being witnessed. Going forward, we could see a rise in INDIA VIX, indicating short-term concerns and fears of the investor community. Stay alert and be prepared for volatility in coming days,” said Aamar Deo Singh, Head Advisory, Angel Broking.

Here are the key reasons behind the market slump:

Simmering Sino-US tensions

The United States on Monday rejected China’s disputed claims to offshore resources in most of the South China Sea, a move that Beijing criticised as inciting tensions in the region and highlighted an increasingly testy relationship.

China has offered no coherent legal basis for its ambitions in the South China Sea and for years has been using intimidation against other Southeast Asian coastal states, the US Secretary of State Mike Pompeo said in a statement.

The harsh tone of the statement, especially in an election year in the US, spooked investors as they feared it could turn worse, which will be a bad sign for an already battered world economy.

Another lockdown looms large

A steady rise in Covid-19 cases has forced many cities to clamp down on movement of people and shut businesses. Pune and Bengaluru are among the big cities going under lockdown, while many areas in states like Bihar and UP are also under curfew.

“Sporadic lockdowns are disrupting operations and standard operating procedures, which are different for different states,” said Varun Berry, managing director of biscuits and confectionery giant Britannia Industries talking to ET

If the acceleration of the virus outbreak continues, a large part of India may be under lockdown again, hurting businesses and derailing ongoing projects. This, in turn, will hurt the prospects of a faster economic recovery.

Sales down 33 per cent

Large manufacturers and retailers of consumer goods, smartphones and automobiles said sales have declined by about a third in the past week as localised lockdowns have been rolled out across the country to arrest the spread of Covid-19.

Mobile phone retailers said sales in July have dropped 30-40 per cent from June due to flattening of pent-up demand and mini lockdowns while supplies have improved. Similarly, German wholesale retail chain Metro Cash & Carry said weekend sales are down by 30-35 per cent.

This has reversed the gains these industries had made in June after the nationwide lockdown imposed in March was eased.

Global markets

Asian stock markets slipped, oil sagged and a safety bid supported the dollar. MSCI‘s broadest index of Asia-Pacific shares outside Japan fell 1.2 per cent. Japan’s Nikkei retreated from a one-month high touched on Monday, dropping 0.9 per cent, while Chinese stocks were down despite better-than-expected trade numbers. A firm dollar put pressure on the Aussie and kiwi market.

The moves came after a selloff on Wall Street that followed reopening rollbacks in California. EUROSTOXX 50 futures were down 1.8 per cent in Asia and the FTSE futures 1.5 per cent, while S&P 500 futures were flat after the index lost 0.9 per cent on Monday.

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