Indian Stock Market Crash: Key Reasons Behind Sensex & Nifty Decline.
The Indian stock market has been witnessing a continuous decline since September last year, with Sensex dropping over 1,000 points today. Factors such as concerns over India's GDP growth, uncertainties in U.S. tax policies, FIIs selling stocks, and the MSCI rebalancing have contributed to the downturn. Additionally, the preference of foreign investors for Chinese markets and higher returns from U.S. bonds have impacted Indian equities. This blog explores the five major reasons behind the stock market crash and its potential implications for investors.
Since the end of September last year, Indian stock markets have been experiencing a continuous decline. Today, Indian stock markets took a significant hit, with the Sensex dropping over 1,000 points in the morning session. Concerns over the country's December quarter GDP growth, uncertainty in U.S. President Donald Trump’s taxation policies, pressure on IT stocks, a rise in the dollar index, and foreign investors selling off stocks contributed to the market downturn. Apart from these, five additional key reasons have led to the market decline.
Disappointing Bank Profits
According to Avinash Gorakshkar, Head of Research at Profit Mart Securities, the fourth-quarter (March quarter) earnings of Indian banks are expected to be lower than market valuations. This disappointing forecast has unsettled investors. Since banks hold a 30% weightage in the Nifty 50 index, this news has triggered volatility in both Nifty and Sensex.
MSCI Rebalancing
Morgan Stanley, through its MSCI (Morgan Stanley Capital International) indices, influences institutional investments. The upcoming MSCI rebalancing is another reason for the stock market downturn, as it may impact trade volumes and capital inflows or outflows for specific stocks. Ahead of this rebalancing, both domestic and foreign institutional investors are expected to adjust their positions.
Foreign Investors Favoring China
Following Donald Trump's presidency, U.S. stock markets have been attracting substantial global capital, diverting investments from other regions. Additionally, Chinese stock markets are drawing investors, especially after the Chinese president’s discussions with top business leaders, which boosted confidence in China’s economic recovery. Since stocks in China are currently undervalued, foreign institutional investors are selling Indian stocks and reallocating funds to Chinese markets, significantly contributing to India's stock market decline.
U.S. Bond Yields
Investments in U.S. bonds are currently offering attractive returns. As a result, foreign institutional investors are selling their holdings in Indian stock markets and reinvesting the proceeds in U.S. bonds. This trend is expected to continue until the uncertainty surrounding Trump’s tax policies is resolved.
Domestic Institutional Investors Struggling
Foreign institutional investors continue to offload Indian stocks, whereas domestic investors are hesitant to buy at high prices. Foreign investors usually sell when stock prices are high, while domestic investors end up purchasing at elevated levels, making it challenging for them to rebalance their portfolios. Until they gain a clearer market perspective, domestic investors are likely to remain cautious.
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