Why Indian Stock Market Crashes?
Why Indian Stock Market crash ?The benchmark Sensex at BSE was down dramatically to 1,280, or 2.2 percent in the first trading hour Monday, as a result of the lingering inflation fears in the world as well as expectations for a speedier rate of rate hikes from the US Federal Reserve, and worries about the weakening of China’s economy. Chinese economy, in addition to the growing number of cases of Covid-19.
While the Sensex decreased by nearly 2 percent, other major Asian markets also dropped quickly on Monday. For instance, the Nikkei in Japan decreased to 1.9 percent, and the Shanghai Composite in China fell by as much as 1.3 percent.
What is the reason for Indian markets are being falling ?
Indian markets which opened after an absence of four days declined sharply due to increasing concerns about different developments, including the ongoing war between Ukraine and Russia. There are also concerns about concerns about the European Union embargo on Russian gas, as well as some sanctions against Russian oil in the next round of EU sanctions.
Inflation continues to be an issue and there is a sense of it is likely that US Fed may increase the rate of increase in lieu from a 25-basis points hike, they could opt for an increase of 50 basis points according to experts.
Although rate increases were anticipated, a significant rise could trigger a rapid withdrawal of funds from foreign portfolio investors. This could put the emerging economy markets and domestic equity markets in a state of stress.
The Chinese Market impact
Another reason that has affected the market sentiment is worry about the rising number of Covid-19 cases in China as well as the slower rate of growth of the Chinese economy.
While Shanghai was under security lockdown from March 1, the city announced three deaths on Monday.
In the meantime, the news agency AFP said that China’s economy expanded 4.8 percent during the first quarter, as an Covid revival cut down the economy. In addition, the National Bureau of Statistics too warned of “significant issues and difficulties” ahead, according to AFP.
Experts think that these restrictions within China could affect supply chains across the globe and will lead to a rise in inflation. This is already impacted by the war between Ukraine and Russia.
What’s the next step to Indian markets?
In light of the current global environment concerning geopolitical tensions and inflation, the equity markets will likely remain unstable in the near future. The FPI flows could remain volatile and could even see an outflow, in line with an anticipated increase in the rate of hikes of the US Fed. Domestic inflation was at 6.95 percent at the end of March, is continuing be a source of worry in Indian markets. The constant pressure due to inflation could cause the RBI to take a decision to go for more rapid rate increase.
In its recent monetarist policy statement that was released, the RBI indicated that it is shifting its focus not on stimulating growth but reducing threats caused by inflation. Although it kept rate of interest unchanged for the moment but indicated that it could consider a increase in repo rates going forward. “In the order of priorities we’ve now placed growth before inflation. It is time to put inflation before the growth rate,” RBI Governor Shaktikanta Das had stated after announcing the bi-monthly review of policy.