Why is the Indian Stock market falling? – Overview
The Indian shares have plummeted significantly in the last month as Nifty saw a 5% decline while small-cap indexes fell by more than 11%, leaving the investors worried. Nifty Energy index for example has lost a whopping 38% of its worth since its peak. The overall market had dipped drastically so if you lost money in your investments, You are not alone here. The pressing questions arise, why has the market dipped so low and for how long will it remain as such? Let’s explore the threads behind the current Stock Market falling situation and what is the future trajectory.
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MACROECONOMIC SITUATION
Indian GDP Growth Dwindling Performance: The GDP estimate was revised from a previously cautious RBI prediction of 7.25% to 6.6%. Even more alarmingly, Q2 growth declined to a mere 5.4%. This dip raises apprehension regarding India’s growth trajectory going forward. If India is to compete with economies such as China we need to be looking at double digit growth rates, which at present is merely hocus pocus.
Plunging Rupees: With the Rupee formation experiencing All time lows against the US Dollar, the entire market has been destabilized. The foreign investors who are staring at depreciating currency and high US bond yields are pulling out all their investments in Indian equities at a pace almost out of control. In October alone, FII net selling was more than ₹ 1 lakh crore.
Shrinking Private Capex: Focused government spending is at a twenty year high but private firms, which are usually the backbone of the economy are on a downward trend. Without strong private investment in place, there can be no systematic growth.
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A GLOBAL PERSPECTIVE
It is important to note that historical trends provide a glimmer of hope to dispel the chaotic economic environment. Back in 2013, grappling with a weak rupee, political uncertainty and fragile economy led to the market crashing by 18%, however within two years there was a Baht Rupee double defense which led to disciplined investors enjoying upwards of 23-24% growth annually. It is assumed that the current reduction of 12% will follow the same trend.
HOW IS THE MARKET EXPECTED TO PERFORM IN THE FORESEEABLE FUTURE?
Interest Rate Cuts: Efforts have been made in western countries to cut down interest rates in a bid to encourage growth, India on the other hand, still has a cut in lending rates. Such a cut could increase consumption while also lowering the consumption which would in turn trigger a recovery in the stock market. This will encourage all participants to keep a keen eye for the next RBI Monetary Policy meeting.
Sector Rotation: As Interest rates reduce and inflation recedes, expanding consumer spending can be expected to infuse back life into previously dormant sectors such as the FMCG, private banks, and housing finance.
The US Market Hedge: Savvy investors are currently broadening their portfolio to include a variety of geographical regions such as the United States, allocating around 20-30% to the US market specifically to both mitigate and offset currency risks associated with holding most of their funds in rupee.
Caution is most definitely advised, although one should still purchase the dip. If adequate measures are not taken one might lose out on the above average profits that can be expected, this is why BB and S are two of the most important factors while investing. Rather than opting for cash buyouts, consider slowly buying stocks!!!over time to average out the costs instead, and don’t be solely reliant on price dips, when selecting stocks prioritize stocks fundamentals instead.
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Why is the Indian Stock market falling? – CONCLUSION
This extreme plunge in the market in my opinion is an opportunity rather than something to be afraid of, although it can be said that the market looks uninviting at the moment. Now would be an excellent time to look at restructuring your portfolio, prepare against adversity and expect a revival.
As they say,
“The greatest risk is not taking one.”
The Indian economy should start working in a way where this is no longer the case.