As the reality of a failing economy triumphs over hopes of a rapid recovery to pre-crisis levels, analysts predict a period of high volatility in stock prices.
Benchmarks fell more than 2%, dragged down by banking and metals stocks.
The BSE Sensex fell 811.68 points, or 2.09%, to 38,034.14. The larger Nifty index fell 2.46% to 11,250.55.
In the United States, too, stocks fell sharply at the start of trading on Monday. The Dow Jones Industrial Average plunged 934 points, or 3.4%, while the S&P 500 lost 2.6%.
Investors around the world have remained nervous with reports suggesting several European countries are bracing for more lockdowns amid a resurgence of covid-19 cases and fading hopes of a further stimulus in the United States.
Markets in the Asia-Pacific region have been further affected by the fall in Hong Kong-listed shares of Standard Chartered and HSBC, both named in FinCEN files for alleged money laundering.
Analysts blamed the decline in India on investors who reserved earnings after stocks rebounded sharply from their March lows.
“Markets traded lower and sold off significantly due to several factors, such as reports of suspected irregular financial transactions involving some of the major international banks, fears of a pandemic rising in a second wave in many parts of Europe and a certain amount of profit reservation with domestic indices at high levels, “said Joseph Thomas, head of research at Emkay Wealth Management.” With the markets outperforming the economy, it is likely that there will be a higher level of volatility. “
European countries, from Denmark to Greece, on Friday announced new restrictions to curb the surge in coronavirus infections in some of their largest cities, while Britain reportedly considers a new national lockdown.
Given the growing uncertainty around covid-19, the Indian Volatility Index (VIX) climbed 13%, closing at 22.65 on Monday.
A rising VIX index indicates that investors expect another market correction to come.
According to Arjun Yash Mahajan, head of institutional activities at Reliance Securities, the sale could continue for some time yet.
“The cases in India are not looking to decline or peak anytime in the near future, and as a result, the general uncertainty over covid-19 is creating concerns in the markets. Finally, the government is cutting short the parliamentary monsoon session, and according to news reports, the session could end on Wednesday, showing how nervous the government is about tough and difficult issues in parliament, “Mahajan said.
In the absence of a domestic institutional currency, foreign liquidity is essential to support the recovery of Indian markets.
In September, foreign portfolio investor inflows into Indian stocks fell to $ 563 million, following large inflows of $ 6.05 billion and $ 1.15 billion in July and August.
Domestic Institutional Investors (DII), which include mutual funds and insurance companies, continue to be net sellers of Indian stocks for three consecutive months. DII sold ₹5,667.47 crore in September after a release of ₹21,054.66 crore in the previous two months.
Meanwhile, spot gold slipped the most in nearly five weeks, falling below $ 1,900 an ounce as the stronger dollar dampened demand for commodities.
Spot gold fell 3.5% to $ 1,882.51 an ounce and silver fell 11% Bloomberg The Dollar Spot Index headed for its biggest gain since June. Inventories fell amid fears the economies could be hit by tighter restrictions on coronaviruses.
“Stocks fell and the dollar strengthened amid a general feeling of no risk in the market,” said Janet Mirasola, Managing Director of Sucden Futures. “Gold fell victim to a stronger dollar.”
Reuters and Bloomberg contributed to history.