Why did the Sensex crash by over 800 points on 21 September?

Sensex came under heavy selling pressure on Monday and the correction only got deeper as the day went by finally closing nearly 812 points lower on the Sensex and around 275 points lower on the Nifty. Here are five key reasons for the movement.

· Sensex was driven lower by weak global cues driven by growth worries as well as resurgence of Coronavirus infections in Europe. US fiscal stimulus used to be a big hope but now Trump has not shown too much enthusiasm. Also there is a lot of nervousness ahead of the US elections.

· Forget about the global situation, Indian COVID cases are on the surge. We continue to see close to 90,000 infections per day with total afflictions getting close to the 55 lakh mark. There is a fear that the restrictions may continue for longer in India and the plan to unlock may get delayed further.

· Banks fell sharply on the back of FINCEN files that implicated a number of Indian banks in transactions that red-flagged by the US Treasury. These were transactions between 2010 and 2017. These are cases of suspected money laundering, terrorism, drug dealing and financial fraud according to leaks. The total volume of transactions is close to $1 billion and that led to banks tanking.

· Markets panicked ahead of the F&O expiry as the controversial Farmer’s Bill appears to be transforming into a flashpoint with protests across the country. This led to most traders booking profits ahead of the F&O contract expiry on Thursday.

· There was some heavy profit booking in mid caps and in metal stocks. In fact, the metal index was the worst hit as traders booked profits on these stocks on fears that the demand bounce in India may take longer than anticipated. Also, the companies have confirmed that the spurt in export demand may not sustain.

While news flows were negative, there was also heavy profit booking after the rally as retail investors also opted to focus on a string of IPOs in the coming days.