Stock Market Crash: Here Are 5 Factors Behind the Bloodbath (image source: iStock)
Stock Market Crash: Indian equity indices continued to declined third consecutive session of losses on Tuesday, mirroring trends in Asian markets. The BSE Sensex witnessed a 700-point drop, while the Nifty50 slipped below the 22,100 mark. During this downturn, the total market capitalization of all listed companies on the BSE decreased by Rs 1.08 lakh crore to Rs 393.4 lakh crore.
Factors Behind the Market Downturn
Geopolitical Concerns
Growing tensions in the Middle East, particularly between Iran and Israel, have contributed to global market uncertainty. Statements from Israel’s military chief hinting at a potential response to Iran’s actions have heightened fears of further escalation, dampening investor sentiment worldwide.
‘Two issues- one economic and the other geopolitical- will continue to weigh on markets in the near-term. The economic factor is the rising US bond yields ( 10-year yield is above 4.6 per cent ) which reduces the prospects of rate cuts by the Fed this year. High bond yields are negative for risky assets like equity and will accelerate FII selling in emerging markets like India,’ said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Rising Bond Yields
Increasing US bond yields have rattled investors, signaling a reduced likelihood of rate cuts by the Federal Reserve in the near future. This surge in bond yields is viewed as unfavorable for riskier assets like equities, prompting foreign institutional investors (FIIs) to consider divesting from emerging markets such as India.
Global Market Declines
European and US markets also experienced significant declines, driven by concerns over elevated US interest rates, slowing growth in China, and the escalating tensions in the Middle East. These factors have collectively contributed to a risk-off sentiment among investors.
‘Investors may wait and watch the developments. Meanwhile, long-term investors can slowly accumulate high quality large-caps on corrections. Further corrections will make valuations of large-caps fair. Largecaps in banking, IT, autos, capital goods, oil & gas and cement are ideal for long-term investment,’ said Vijayakumar.
FIIs in Selling Mode
Foreign institutional investors (FIIs) have been net sellers in the Indian equity market, offloading shares worth Rs 3,268 crore recently. Conversely, domestic institutional investors (DIIs) have continued to buy stocks, purchasing shares worth Rs 4,762.93 crore.
Oil Price Surge
Oil prices surged following Iran’s retaliatory actions against Israel, with Brent futures reaching $90.56 a barrel and US crude futures at $85.84 a barrel. The geopolitical tensions in the Middle East have heightened concerns about potential disruptions to global oil supplies, impacting market sentiment.
