Why Sensex Plunged 788 Points Today, Its Worst Day In Six Months

The S&P BSE Sensex and NSE Nifty 50 indexes nosedived in today's session as markets suffered their worst day in six months after US President Donald Trump issued a threat to impose sanctions on Iraq amid escalated tensions with Iran in the Middle East. United States killed a top Iranian military commander in Iraq on Friday, which led to surge in gold and crude oil prices internationally and a drop in equities. The Sensex plummeted as much as 851 points while the Nifty 50 index dropped as much as 252 points to 11,974. The Sensex ended 788 points or 7.9 per cent to close at 40,676.63 and Nifty 50 index dropped 234 points or 1.9 per cent to close at 11,993.

Here's what dragged the markets lower:

US-Iran Tensions

The killing of Qasem Soleimani, a top Iranian commander, in the strike ordered by President Donald Trump escalated tensions in the Middle East and raised concerns of retaliation on the part of Iran. The government in Iran has already announced that it will not abide by the uranium enrichment limits under the 2015 nuclear deal, from which the United States had unilaterally withdrawn in 2018. The US President Donald Trump's subsequent threat of a major retaliation if Iran avenges killing of the military commander further kept the traders on the edge. In other middle east development, Trump also threatened to impose sanctions on Iraq after its parliament called on US troops to leave the country.

Weak Global Markets

The heightened geopolitical tensions had a domino effect on the global equity markets. Stocks, meanwhile, mostly kept falling on Monday. South Korea's Kospi lost 0.8 per cent, Hong Kong's Hang Seng Index dropped 0.7 per cent. Japan's Nikkei 225 weakened by 2.1 per cent on its first trading day of the year after several days of New Year holidays.

Oil On Boil

The flare-up in Iran-US tensions sent the prices of oil surging to six-month peaks as the Middle East is home to some of the world's leading oil producing countries. Brent crude gained 2.4 per cent to reach $70.24 per barrel. A rise in crude oil is bad news as India imports more than 80 per cent of its crude oil requirements and the ballooning oil prices could impact the fiscal math.

In a related development, gold also touched a near seven-year high as harried investors scurried for the safe heaven. On the MCX, February gold futures surged 2.3 per cent or Rs 918 to a record high of Rs 41,030 per 10 gram.

Rupee Spiralling Downwards

The rupee nosedived below the 72-mark on the back of rising global oil prices. It had opened 21 paise lower at 72.01 per dollar versus Friday's close of 71.80 and is currently trading at 72.04 a dollar. The weakening rupee is also bad omen for the Indian economy as it will drive up the price of imports.

Rise in Volatility

India VIX, which is a measure of volatility in the market, soared as much as 16 per cent to 14.8.

Gainers and Losers

All the sector gauges compiled by National stock Exchange ended lower, led by the Nifty PSU Bank index's over 4 per cent fall. Nifty Realty, Private Bank, Bank, Auto, Financial Services, Media and Metal indexes also plunged between 2.3-3 per cent each.

Forty six out of 50 shares in the Nifty 50 basket ended lower. State Bank of India was top Nifty loser, the stock declined 4.6 per cent to close at Rs 318.40. Bajaj Finance, Vedanta, Zee Entertainment, Yes Bank, IndusInd Bank, Hindalco, Bajaj Finserv, Bharat Petroleum, Coal India and Maruti Suzuki were also among the losers.

On the flip side, Titan, Wipro, Dr Reddy's Labs and TCS were among the notable gainers.