The Indian stock markets crashed today after being spooked by the carnage across the global markets earlier in the morning and the takeaways from last Friday’s trading. The loss to the Indian investors during the manic Monday trading was a horrendous Rs 17.11 lakh crore. While Sensex plunged by over 2400 points, Nifty fell by as much as 600 points. A number of reasons, not just foreign ones, were behind this blood bath on the markets. While today, the global markets may have been the last straw that broke the camel’s back, Indian markets have been retreating over the last week. In fact, the Nasdaq had closed down by over 2 per cent on Friday, signalling the way things may move on Monday. It was not just the benchmark indices Sensex and Nifty that swooned today, midcap and smallcap indices too plunged.
Top 5 reasons why stock markets crashed today:
1. Recession coming soon in the US?
From India, China, Japan, Europe to South America, this is a question that will terrify investors anywhere. And the answer is exactly what nightmares are made of. Most notably, US payroll data indicates that the unemployment rate has rocketed to 4.3% in July after logging 4.1% in June. This new level is at a 3-year high. This in itself is something to send investors scurrying out of the markets and into safer harbours.
Matching this doomsday scenario is a Bloomberg report saying that Goldman Sachs researchers raised the probability of a recession to an astonishing high of 25% from the earlier 15%.
2. Middle-East Mayhem Hits Markets
Last week saw a number of negatives in the Middle-East, specifically the Iran-Israel face-off after the killing of a senior Hamas functionary Ismail Haniyeh in Tehran just hours after he met the senior-most Iranian leaders. Iran has vowed revenge and a retaliatory attack is expected soon. This prospect of a wider escalation that may draw even the US into the war is also pushing investors away from the markets.
US authorities are calling for calm, but today’s market crash shows that investors have absolutely no faith in the Biden Administration being able to control Israel’s continued aggression. The US, in any case, has no control over the Iranians.
3. Indian markets overvalued?
Authorities and market experts have already been calling attention on a regular basis to the fact that Indian markets are overvalued. The stretched valuations had even forced SEBI to crack down on the primary issuance market when it slapped a cap on gains at 90%.
What kept the stock market party going for so long was the comfortable liquidity situation. Apart from the IPO segment, the valuations looked overstretched especially in the midcap and smallcap segments.
In fact, India has widely, and for some time, been seen as the most expensive emerging market and that better bargains were available elsewhere.
To this can be aded the fears of a wider FPI outflow scenario as the foreign investors were widely expected to order a retreat from India. And the FPI problem may persist as once gone, it will take a lot of time for them to return.
Foreign institutional investors had offloaded over Rs 3,310 crore in equities on Friday.
Significantly, some experts have even welcomed the stock market crash, saying the result will see everyone understand the ground reality better.
4. Quarterly results problem
It made for the generation of the perfect storm for the stock markets. The quarterly results have been nothing to shout and cheer about. In fact, they have barely managed to meet market expectations. Overall, India Inc results in the first quarter, across various segments, have failed to make a positive impact. However, this has been evident for some time and the recent global cues have taken this too as one of the factors to spread negativity all around.
This trend is not limited to India, the US companies, big and small, have seen their earnings erode and revenues impacted as is evident from their results.
5. Global stock market bloodbath
The early morning news for Indian investors was terrifying. Stock markets here generally react to what happens in the US markets overnight and how the Asian markets open. Both had bad news. The Japanese, South Korean and Australian markets crashed by up to 6 per cent. The Bank of Japan itself has been in the news recently for its interest rate hike and its impact too was expected to be wide.
In fact, the negativity had set in so deep that even US Fed Chair Jerome Powell suggesting there may well be a rate cut in September, could not reassure investors. The problem, as they saw it, was that it would be too less and too late to make a difference now. Even the prospect of easing inflation in the US could not stem the tide of negativity.
MARKET UPDATE: However, by 14:00 P.M., Sensex pulled back some of the losses. It was trading at 78,919.23 points, down by 2,062.73 points or 2.55% down.
As Sensex, Nifty, midcaps, small caps crash and horrified investors see over Rs 15 lakh crore of their money disappear, check out the top 5 reasons why the stock markets crashed today. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
