Economic crisis deepens as Sensex crashes 770 points, Rupee plunges

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The markets went on a selling spree on Tuesday, despite the slew of recent economic reforms by the Finance Ministtry to boost investor sentiments and help ailing banks. The macroeconomic data on GDP, core sectors and auto sales indicating the deepening economic rout in the country is partly the reason for the bearish spirits.

The BSE benchmark Sensex crashed nearly 770 points and the NSE Nifty tumbled over 225 points on Tuesday due to panic sell-offs across the board as investors fretted over deepening economic crisis and ever-lasting global trade tussle.

After nosediving 867 points during the day, the 30-share index ended 769.88 points, or 2.06 per cent, lower at 36,562.91. The broader Nifty too sank 225.35 points, or 2.04 per cent, to settle at 10,797.90.

Top losers in the Sensex pack included ICICI Bank, Tata Steel, Vedanta, HDFC IndusInd Bank, Tata Motors, RIL and ONGC -- falling up to 4.45 per cent.

Only two IT stocks -- TechM, HCL Tech -- ended with mild gains, tracking weaker rupee.

The Indian rupee plunged 90 paise (intra-day) to trade at 72.27 per US dollar.

All sectoral indices ended in the red, with BSE metal, energy, consumer durables, telecom, bankex, finance, oil and gas, realty and capital goods indices settled 3.23 per cent lower.

Broader BSE midcap and smallcap indices too closed up to 1.65 per cent lower.

"The sharp fall in the Q1 GDP growth to 5 per cent and the weak core sector growth are the key factors that have caused a fall in the markets as it opened after a long weekend. The continuing negative global cues, the raging tariff war between the US and China, and the likely sluggishness in the economic fortunes of economies around the world have also been behind the rot in the markets here as well as elsewhere," said Joseph Thomas, Head of Research - Emkay Wealth Management.

Weak domestic consumption especially in rural areas has resulted mainly from low employment levels and non-availability of finance, which are issues that call for immediate measures to salvage the situation, Thomas said.

Public sector bank stocks also ended in significantly lower after the government announced the merger of 10 state-run lenders into four.

However, the merger will still be painful as a result of the geographic and cultural diversity of the merging entities, they added.

Despite several efforts by the government to boost the economy, market sentiment took a hit on account of weak macroeconomic data releases and double-digit decline in auto sales in August as the sector continued to reel under one of the worst slowdowns in its history.

Official data released after market hours on Friday showed that India's GDP growth slipped to an over six-year low of 5 per cent in the June quarter of 2019-20, hit by a sharp deceleration in manufacturing output and subdued farm sector activity.

Additionally, the country's manufacturing sector activity declined to its 15-month low in August, owing to slower increases in sales, output and employment, the IHS Markit India Manufacturing Purchasing Managers' Index showed.

Growth of eight core industries also dropped to 2.1 per cent in July, mainly due to contraction in coal, crude oil and natural gas production, according to a government data released on Monday.

Elsewhere in Asia, bourses in Shanghai, Hong Kong, Korea and Japan were ended on a mixed note after the US and China on Sunday put in place their latest tariff increases on each other's goods.

Exchanges in Europe were also trading the the red in their respective early sessions.

Global oil benchmark Brent crude fell 1.07 per cent to 58.03 per barrel (intra-day)

PSB shares plummet following merger

Public sector bank stocks, led by Corporation Bank and Punjab National Bank, tumbled up to 9.3 per cent on Tuesday after the government announced the merger of 10 state-run lenders into four.

Shares of Corporation Bank tanked 9.28 per cent to Rs 17.10, Punjab National Bank plunged 8.54 per cent to Rs 59.40, Canara Bank dropped 7.54 per cent to its one-year low of Rs 203.90.

Oriental Bank of Commerce cracked 7.34 per cent to Rs 68.10, Union Bank of India 6.79 per cent to its 52-week low of Rs 54.90, Allahabad Bank declined by 2.83 per cent to Rs 34.30 and United Bank 0.28 per cent to Rs 10.39 on the BSE.

However, Andhra Bank rose 5.31 per cent to Rs 20.80 and Syndicate Bank gained 3.55 per cent to Rs 33.50.

Equity markets were closed on Monday for 'Ganesh Chaturthi'.

Continuing its firefight against the deepening economic slowdown, the government on Friday unveiled a mega plan to merge 10 public sector banks into four with a view to creating fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.

The mergers announced on Friday, together with two set consolidations done last year, will reduce the number of public sector banks to 12 from 27 in 2017.

Oriental Bank of Commerce and United Bank will merge with Punjab National Bank to create the nation's second-largest lender behind State Bank of India. Also, Syndicate Bank will merge with Canara Bank while Andhra Bank and Corporation Bank would subsume into Union Bank of India, and Allahabad Bank will be amalgamated with Indian Bank.

According to Emkay Global, the merger of Canara and Syndicate could be relatively less disruptive in terms of integration... Being a strong mid-sized bank, Indian Bank was always susceptible to merger, but the merger with Allahabad Bank instead of IOB will be less painful.

However, it could be challenging due to cultural and geographical diversity with Allahabad Bank and its relatively weak asset quality.

PNB has been inherently weak and the merger could further aggravate and prolong the pain. Being a perennially capital-starved bank, Union Bank should benefit on the capital front due to the merger and has also been graced by the government with a healthy capital infusion, but that being said the merger will still be painful as a result of the geographic and cultural diversity of the merging entities.

Gold prices gain

Prices of 24 karat gold rose by Rs 538 to Rs 38,987 per 10 gram in the national capital on Tuesday, mainly on the back of recovery in global rates, according to HDFC Securities.

Silver prices too witnessed similar trends. The rate of silver zoomed by Rs 1,080 to Rs 47,960 per kilogram in the national capital, as per the data.

"Gold prices traded positive on Tuesday on trade talks uncertainty after new tariffs from the US and China came into effect from September 1," Tapan Patel, Senior Analyst (Commodities), HDFC Securities said.

On Monday, gold prices stood at Rs 38,449 per 10 gram, while silver was at at Rs 46,880 per kilogram.

In the international market, gold prices ruled at USD 1,530 an ounce in New York while silver was quoted at USD 18.50 an ounce.

"The international spot gold prices pared morning losses and recovered to USD 1,530 an ounce supported by a weaker rupee," he said.

Rupee tumbled 67 paise to 72.09 against the US currency in early trade on Tuesday, tracking weak opening in domestic equities amid strong dollar demand from banks and importers.

The 30-share benchmark BSE Sensex slumped nearly 770 points as investors fretted over deepening economic crisis and global trade tussle.

(With inputs from PTI.)

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