Indian equity markets suffered significant losses on Monday as both, the 30-share BSE Sensex and 50-share NSE Nifty, plunged by over 1.25%.
BSE Sensex slipped 825.74 points or 1.26% to close at 64,571 – the biggest single-day loss since July 1. During the day, it plummeted 894.94 points or 1.36% to 64,502.68.
The broader NSE Nifty also slumped by 260.90 points or 1.34% to finish trading at 19,281.75. This was Nifty’s worst session in more than seven months, according to Reuters.
Among the Sensex firms, JSW Steel, Tata Motors, Tata Steel, Tata Consultancy Services, NTPC, Wipro, HCL Technologies, State Bank of India, Larsen & Toubro, UltraTech Cement, IndusInd Bank, Kotak Mahindra Bank, Power Grid and Reliance Industries Limited were the major laggards. Mahindra & Mahindra and Bajaj Finance were the gainers.
According to the Economic Times, the decline in the stock market on Monday has resulted in a loss of approximately ₹7.56 lakh crore to investors.
But what led to this mayhem? We take a look.
Reasons behind the equity market crash.
1- Rising tensions in the Middle East
Market experts have attributed the significant fall in Sensex and Nifty to multiple factors, but have agreed that it was primarily due to the rising geopolitical tensions in the Middle East due to the war between Israel and the Palestinian militant group Hamas.
Over 6,000 people have died on both sides and thousands have been injured and displaced. Many fear that the conflict between Israel and Palestine could engulf more Middle Eastern countries.
Shrikant Chouhan, head of equity research at Kotak Securities, told Reuters that the simmering geopolitical tension in the Middle East region has triggered a wave of selling pressure.
“The uncertainty has increased further, leading to weak sentiment across global equities,” Chouhan said.
Arun Kejriwal, Founder of Kejriwal Research and Investment Services, also expressed similar sentiments.
“Israel Hamas war has fueled uncertainty among investors as Middle East tension is yet to get any solution despite more than a fortnight of its outbreak,” Kejriwal was quoted as saying by Mint. “This geopolitical uncertainty has put equity under pressure and hence Indian stock market has been under pressure for the last four days.”
Varun Aggarwal, founder and managing director, Profit Idea, said that escalating geo-political tension in the Gulf region also adversely affected US and European markets (which tumbled by around 1.5%), indicating weak sentiments globally, according to ANI.
2- Rise in US treasury yields
The 10-year US Treasury yield rose above 5% on Monday for the first time in 16 years as investors anticipate higher interest rates.
In simpler words, US Treasury yield is a measure of how much it costs the American government to borrow. It is widely used as a benchmark for all types of lending.
According to Bloomberg, the rise in yields will ricochet to broader markets, impacting borrowing by households, businesses and governments in the US and abroad.
3- Strong US Dollar
According to Avinash Gorakshkar, Head of Research at Profitmart SEcurities, the US Dollar Index (a measure of the US Dollar’s value in comparison to other foreign currencies) has remained above 106 for the last week.
“This is despite US Fed’s dovish stance on interest rate hike,” Gorakshkar said, according to Mint. “This could also be a reason equity markets in India feeling the sell-off heat.”
4- Weak Q2 results
Gorakhkar adds that markets are not happy with the kind of results some of the Indian companies have declared so far.
“We saw good results of ICICI Bank and Kotak Mahindra Bank last week, which is yet to get converted into the stock buying interest. Some big companies like DMart have delivered weak quarterly numbers,” he told Mint. “So, Indian companies have reported Q2 numbers which seem below expectations of the markets.”
Disclaimer: The views given in this article are those of individual analysts and do not represent the views of the Hindustan Times.