Over the recent days, global stock markets, including India’s, have experienced significant downturns. Here’s a comprehensive analysis of what is causing this tumultuous scenario and its implications for investors.
Continuous Decline:
For five consecutive days, the stock market faced a substantial decline, erasing more than 14 trillion rupees of investors’ wealth. This is evident from significant indices like BSE Sensex slipping below 64,000 and Nifty 50 dipping under 19,100.
Middle Eastern Political Tensions:
One of the primary reasons for this downturn has been the rising political tensions in the Middle East. The ongoing conflict between Israel and Hamas has exacerbated geopolitical risks. Given that many countries in the Middle East are major oil producers, global economies are anxious about potential disruptions in oil supply. An escalation in this conflict might push crude oil prices upwards, leading to an increase in the prices of raw materials and subsequently stoking inflation in the global market.
U.S. Bond Yields:
The U.S. bond, especially the 10-year bond, is often considered one of the safest investment avenues worldwide. Recently, its yield surged, even crossing the 5% mark. As a result, analysts predict that investors might pull their funds from emerging and risk-prone markets and prioritize investing in U.S. bonds. This offers them a secured 5% annual return in dollars, whereas investments like Indian shares come with geopolitical and currency risks. This shift in investment priority is evident as foreign investors have already sold Indian shares worth 10345 crore rupees this month.
Underwhelming Quarterly Results:
Many leading Indian companies didn’t perform as expected in the September quarter. The disappointing results from these major players have put additional pressure on the market. Notably, while most IT companies are grappling with sluggishness, banks are wrestling with shrinking margins.
Global Market Pressure:
The global scenario has also weighed heavily on the domestic stock market. European markets opened in the red, while Asian markets showed mixed reactions. Markets in Singapore and South Korea closed in the red zone, although some markets displayed slight recovery.
Overvalued Shares:
Both India and the U.S. are amongst countries where shares are perceived to be pricey. Consequently, there’s always an underlying risk of sudden declines. This overvaluation is more evident in the small and mid-cap space. According to Vijaykumar, Chief Investment Strategist at Geojit Financial Services, mid-cap and small-cap valuations have grown excessively compared to large caps, so a correction was anticipated. At present, investing in rightly valued large-cap shares, especially in the banking sector, seems like a prudent move.
while factors like political unrest in the Middle East and fluctuations in the U.S. bond yields have led to the current market instability, it’s essential for investors to stay informed and make decisions based on a long-term perspective.
