The Indian stock market benchmarks, the Sensex and Nifty 50, experienced a significant crash, each declining over 3 percent in intraday trading. This downturn was largely influenced by global market trends, particularly fears of a recession in the United States and escalating tensions in the Middle East.
The Nifty 50 plummeted 824 points, falling below 24,000, and the benchmark BSE Sensex crashed 2,686 points, or 3.3 per cent, in intraday deals to hit an intraday low of 78,296.
Moreover, the India Volatility Index (VIX) experienced a remarkable surge of over 50 percent, marking its largest single-day increase since August 2015.
Here are key factors that appear to have significantly impacted the Indian stock market:
US Recession fears:
Disappointing jobs data from the United States has raised significant concerns about the economy’s stability, leading investors to reassess their positions.
The recent employment report indicated a slowdown in job creation, with only 1,14,000 new jobs added in July, far below the expected 1,75,000. This slowdown, coupled with a rise in the unemployment rate to 4.3 percent.
According to reports, Goldman Sachs economists have increased the probability of a recession in the US to 25 percent from 15 percent in the next 12 months.
The Federal Reserve has suggested that it might need to lower interest rates sooner than expected to boost demand and support the economy. However, there are worries that these measures could be insufficient to avert an economic downturn.
Rising tensions in the Middle East:
According to reports, the assassination of Haniyeh is seen as a significant escalation in the ongoing conflict between Israel and Hamas, with potential ramifications for regional stability as Iran prepares to respond.
Rising geopolitical tensions in the Middle East added to the market’s volatility. Investors reacted to these uncertainties by moving away from riskier assets, contributing to the sell-off in Indian equities.
Weak Global Cues:
The sell-off in India is part of a broader global trend, particularly influenced by substantial declines in Asian markets. For instance, the Nikkei 225 index dropped over 12 percent, marking its largest single-day point decline in history.
Moreover, the Bank of Japan raised its benchmark interest rate for only the second time in 17 years. This decision was influenced by prolonged weakness in the Japanese yen, which had led to rising inflation.
Additionally, Japanese foreign portfolio investors (FPIs) hold significant stakes in the Indian market, valued at approximately Rs 2.06 lakh crore.
Their investment decisions may be influenced by the yen’s performance, which could lead to adjustments in their portfolios depending on the perceived risks and opportunities in the Indian market.
Unimpressive Q1 result:
The June quarter (Q1FY25) result has been mixed and failed to cheer market sentiment. The rally in recent times was supported by earnings growth, but experts see some moderation in the earnings of several sectors, which has potentially triggered some profit booking in the market.
Overall, due to the decline the market capitalisation of the firms listed on the BSE dropped to nearly Rs. 440 lakh crore from nearly Rs. 457 lakh crore in the previous session, making investors lose nearly Rs. 17 lakh crore in a session.
Written By Vaibhav Patil
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