Here are the key factors behind the decline of stock markets


Indian Market
by 5paisa Research Team Last Updated: 2022-09-26T15:24:10+05:30

The Indian stock markets are bleeding and how. Since last Tuesday the benchmark Sensex and Nifty have lost more than 3.8% and 3.87% of their value, respectively. 

On Monday alone, the indices were down about 1.6% by late afternoon trade. 

A report in The Economic Times has said that the market crash has left Indian investors poorer by as much as Rs 7 lakh crore. 

But why are markets falling?

Indian markets have been spooked by global macroeconomic concerns, leading them to take a tumble for the fourth day in a row. 

This, as the global macro construct remained unfavourable.

What are the key factors that have spooked the markets the most?

The US Fed rate hike tops the list of factors that are roiling the markets. Although US Fed's 75bps rate hike was anticipated but the sustained aggressive stance indicating 125 bps hikes in the next two policy meetings by December 2022 has spooked the market.

Along with this, the flight to safety of the US dollar in turbulent times, the US dollar index continued to rally and was around the 114-mark. The Indian rupee, as a result, hit a fresh all-time low of 81.55 against the greenback. A depreciating rupee makes India less attractive for foreign investors.

A third factor is bond yields. Due to the sharp rise in US bond yields, Indian bond yields have also moved up sharply with two-year bond yields moving to a 3-year high. India's 10-year benchmark govt bond yield was at 7.4173%.

US two-year bond yield was up 1.3% at 4.26% while the benchmark 10-year Treasury stood at around 3.75%, its highest level since 2010.

Another factor is the rout in the global markets in all major economies. Last Friday, the Dow Jones had ended at its lowest closing value since November 2020. For the week, the Dow dropped 4% while the S&P 500 slid 4.6% and the Nasdaq tumbled 5.1%. Goldman Sachs has sliced their end of year S&P 500 target from 4,300 points to 3,600, which would be below the June low.

In other Asian markets, MSCI's broadest index of Asia-Pacific shares outside Japan was down 1% to a two-year low. It is heading for a monthly loss of 11%, the largest since March 2020. Japan's Nikkei fell 2.2%.

Yet another factor is the outflows of foreign hot money from India. The rise in bond yields and rupee depreciation is making foreign institutional investors or FIIs pull out money from Dalal Street. FIIs sold Indian equities worth around Rs 2,900 crore last Friday.

All of these factors have led to fears of a recession. Noted Economist Nouriel Roubini, who predicted the financial crisis in 2008, says the US and the rest of the world is about to face an ugly and long recession. The "Dr Doom" said the S&P 500 could fall by 30% in a normal recession and 40% in a brutal recession.

The 5% cut in MSCI World Index last week indicates the bearish undertone of global equity markets.

And then there is the case of vaulted valuations. Despite positive macros including India's decoupled economy, pickup in credit growth and tax collection, India remains one of the most expensive stock markets in the world.

Apart from these a few technical factors are also influencing market moves. Nifty's support was seen at 17,166, a breach of which in the morning led to a sharper fall. Analysts said 17,490 could be the resistance for Nifty in the near term. On Friday, the index had formed a long bearish candle on the charts which is broadly negative.

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