4 Reasons Why Sensex Plunged 695 Points Today

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After opening the day on a positive note, Indian share markets witnessed heavy selling pressure during closing hours, pausing the record rally, following broad-based selling.

At the closing bell, the BSE Sensex stood lower by 695 points. Meanwhile, the NSE Nifty ended down by 197 points.

Eicher Motors was the top loser in NSE. Meanwhile, the top gainers in NSE today include ONGC and Gail.

SGX Nifty was trading at 12,916, down by 146 points, at the time of writing.

On the sectoral front, banking stocks and realty stocks were among the hardest hit.

Oil exploration & production stocks were also in focus today as crude oil prices hit their highest level since March amid news flow related to smooth US presidency transition and encouraging developments on the Covid-19 vaccine front.

Asian stock markets ended on a mixed note. As of the most recent closing prices, the Hang Seng was up 0.3% and the Shanghai Composite stood lower by 1.2%. The Nikkei ended up by 0.5%.

US stock futures are trading mixed today. Nasdaq Futures are trading up by 34 points (up 0.2%), while Dow Futures are trading down by 45 points (down 0.1%).

The rupee is trading at 73.90 against the US$.

Gold prices for the latest contract on MCX are trading up by 0.3% at Rs 48,735 per 10 grams.

To know more about gold, you can check out our detailed article on investing in gold here: How to Invest in Gold?

Here are Top 4 Factors Why Indian Stock Markets Plunged Today

Profit Booking: Indian share markets witnessed profit-booking ahead of the expiry of the November F&O series. Besides, rising cases of Covid-19 remain an overhang.

Broader Markets Underperform: In sync with the benchmark indices, the BSE Midcap and Smallcap indices too suffered strong losses. The BSE Mid Cap index ended down by 1.8%. The BSE Small Cap index ended lower by 1.1%.

All Sectoral Indices End in Red: On the sectoral front, all sectoral indices ended on a negative note with realty stocks, banking stocks and telecom stocks witnessing most of the selling pressure.

Companies Under Profiteering Probe: Investor sentiment dampened after it was reported that more than 100 companies are being probed for allegedly inflating their bottom-lines by not passing on the Goods and Services Tax (GST) relief to consumers, the intended beneficiary of several rounds of tax reductions since 2017.

Reportedly, most of the ongoing investigations by the Directorate General of Anti-Profiteering (DGAP) are against real estate developers, fast food joints and cinemas.

We will keep you updated on how these factors develop in the coming days and what effect they have on Indian stock markets. Stay tuned!

In news from the banking sector, Lakshmi Vilas Bank was among the top buzzing stocks today.

Shares of the private lender erased its initial losses and surged 5% after the Cabinet approved the merger of Lakshmi Vilas Bank (LVB) with DBS Bank India.

Following the approval, DBS Group Holdings - Singapore's biggest bank, will take over Lakshmi Vilas Bank in a deal pushed by the RBI.

This also marks the first instance when India has turned to a foreign entity to bail out a struggling domestic bank.

The 94-year-old LVB will now cease to exist and its equity completely wiped out. Its deposits will now be on the books of DBS India.

Earlier this month, the RBI had placed LVB under a one-month moratorium till December 16, during which withdrawals for depositors have been capped at Rs 25,000.

Following this news, shares of Lakshmi Vilas Bank fell as much as 50% in the past seven trading sessions, amid negative reports surrounding the company.

Note that LVB is the third bank to be placed under moratorium since September last year after the co-operative bank PMC in 2019 and Yes Bank this March.

Speaking of Lakshmi Vilas Bank, if there is any private sector bank that has severely underperformed in the last two years, it has to be Lakshmi Vilas Bank.

Back in May 2019, we wrote an article around how we avoided a 60% loss in Lakshmi Vilas Bank.

Here's an excerpt from the article:

• LVB had an interesting story.
  
  The bank had a new management team in place. The bank was shedding its old image to bring out a new look.
  
  The new management had a clear vision and set several goals. These included deposit and loan growth targets, CASA (current account saving account) ratio targets, a focus on retail loans, and the reduction in cost-to-income ratio.
  
  So far so good.
  
  But the bank had its own legacy issues. These were rising bad loans, a weak balance sheet with a poor capital adequacy ratio (CAR).
  
  The falling CAR was a concern.
  
  The CAR is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities. The RBI has set the minimum CAR at 9% for all banks.
  
  A ratio below 9% indicates the bank does not have enough capital to expand its operations. It ensures that banks don't expand their business without having adequate capital.
  
  On one hand, LVB had bad loan issues and on the other, it badly needed capital to shore up its CAR.

If you look at the shareholding pattern of LVB during the 2-year time frame between May 2017 to May 2019, retail investors have increased by 15%. The number of shares owned by them increased by 24%.

A typical example of retail investors catching a falling knife!

You can also read out latest Profit Hunter issue on the above fiasco here: Lesson for Investors from the Lakshmi Vilas Bank Fiasco.

Apart from Lakshmi Vilas Bank, market participants were also tracking HDFC Bank share price.

HDFC Bank today became the first bank in the Indian history to cross the Rs 8-trillion market capitalization milestone after its shares hit fresh record high of Rs 1,464 apiece on the BSE in the intra-day deals.

HDFC Bank became India's third firm to achieve this milestone. Earlier, Tata Consultancy Services (TCS) and Reliance Industries have achieved this landmark.

Foreign brokerage CLSA, in a note dated November 24, raised the private lender's target price to Rs 1,700 from an earlier target of Rs 1,525 per share and maintained their 'positive' stance on the stock as it believes the lender deserves a premium versus peers, given its higher profitability and stronger underwriting quality.

Shares of HDFC Bank have nearly doubled from the low of Rs 739 hit in March 2020, and have climbed as much as 98% to reach its fresh lifetime high.

Note that, HDFC Bank is one that has always adapted to changing times.

HDFC Bank wanted to transform itself from a leader in the physical banking to a leader in online banking. Since then, HDFC Bank has constantly focused on going digital.

In 2004, only 10% of customer transactions were initiated through internet and mobile. The number has gone up to 92% in 2019.

It is a great example of a company which has taken advantage of its scale and embraced disruption rather than fear it.

These are traits that one should look for in picking stocks. They not only withstand the disruption but also gain from it in the long-run.

Moving on to news from the automobile sector, auto stocks continued their uptrend with the BSE Auto index hitting a fresh 52-week high today.

However, gains were later wiped off amid broad based selling.

The BSE Auto index has more-than-doubled from its March lows.

Reports state that the strong rally in automobile stocks is on the expectation of improvement of volumes in the coming quarters on better rural sentiment, low-interest rates, improving finance availability, and a gradual pick-up in business and economic activity.

Shares of Mahindra & Mahindra (M&M) and Motherson Sumi Systems have surged over 200%, while shares of Tata Motors, Ashok Leyland, and Balkrishna Industries, from the auto index, have rallied between 150% and 180% from their respective March low levels.

How auto stocks perform in the coming months remains to be seen. Stay tuned for more updates from this space.

Speaking of auto stocks, in her latest video, Co-head of Research at Equitymaster, Tanushree Banerjee talks about Mahindra & Mahindra (M&M).

In the video, Tanushree explains whether M&M has upside from the perspective of growth or value.

Tune in to the video to find out more:

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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