The positive start nevertheless withstanding, the decline of Indian markets continued for the 6th straight session on Thursday, 14th November. This was defined by weak global trends and related factors like a weakening rupee and a rise in the dollar index. Continuous selling by foreign investors was another trend that led to the recent stock market crash.
On Thursday, Sensex fell by 266 points. The 0.34% fall led to the day’s low of 77,424.81. If we take a look at broader NIFTY, it fell by 116.25 points. This 0.5% fall led to its intraday low of 23,486.10.
It is noteworthy that both stocks are more than 10% away from their record highs respectively that were hit in September. So, in merely six sessions, the indices lost over 4%.
Turning to broader markets, they have outperformed the benchmarks. Nifty Smallcap and Nifty Midcap gained 0.85% and 0.55% respectively.
Trump factor significantly impacts Indian markets
Trump factor has strongly been impacting Indian markets for a long. At a time when Indian markets are suffering, the dollar index is rising strongly and currently stands at 106.61. The yield of the US 10-year bond is at 4.48%. The two strong headwinds indeed retain their value for equity markets, since India is an emerging economy. This gives rise to some positive factors as well.
DIIs now have more liquidity at their disposal and the flow into these funds is sustained. But, at the domestic level, disappointing Q2 results are a matter of worry. Besides, consensus earnings are also downgrading.
The duration for which these flows can sustain is a matter of concern. At this point, the market looks forward to strong GDP earnings and a rebound in earnings growth. The quicker these developments take place, the better it will be for the Indian markets.
Top 4 reasons behind the stock market crash
1. Rupee weakens
With the depreciation of the rupee by 1 paisa, it reached a historic low of 84.40 versus the US dollar as early trading took place on Wednesday. Strong dollar and ongoing foreign funds outflows weighed on the rupee.
USDINR pair was extraordinarily volatile at this time, pushing the rupee exceedingly closer to its all-time low. As per a SBI research report released earlier in the week, in the light of Donald Trump’s return to the white house, the Indian rupee could depreciate by 8-10% versus the US dollar.
2. The surge in the dollar
In November, the dollar surged by 1.8%. This is vastly seen as the outcome of Donald Trump’s victory in the US elections. The dollar attained its highest level since July, 105.98, but this exerts pressure on the emerging market currencies. There will be more outflows to the US from emerging markets.
3. Ongoing FPI selling
The selling spree of Foreign Portfolio Investors was ongoing for the 32nd session at a stretch. Shares worth 364.35 crores were offloaded on Tuesday. This brought the total outflows for November to 23,911 crore. Investor sentiment has been dampened by weak economic indicators, earnings that are slower than expected, and extreme valuations. In sharp contrast, China’s recent stimulus measures attract foreign investors, shifting their focus to Chinese stocks from Indian markets.
4. Delay in rate cuts become a cause of concern
At a global level, central banks have begun to reduce interest rates and the US Federal Reserve is herein included. In the case of RBI, nevertheless, the rates remain unchanged. Inflation is a matter of concern here as ongoing crop and food damage has led to rising prices. The situation has been further worsened by the rupee’s depreciation. As import costs increase, inflation gets a further push. RBI’s upper tolerance limit is 6%. But there was 6.21% inflation in October’s inflation data. For the first time in more than a year, RBI’s upper tolerance limit has been breached.
Conclusion
In the meanwhile, in light of the recent stock market crash, investors will need to stick to sectors with strong demand and quality stocks. It is prudent at this hour to invest in sectors like petroleum refining, metals, and cement as these sectors encounter a growth slowdown. Safer sectors to invest, in at this time are IT, pharma, hotels, new-age digital companies, and banking where growth prospects are higher.
