Why Indian Markets Have Crashed? – Free PDF Download

What has happened?

• The benchmark Sensex at BSE fell sharply by 1,280 points or 2.2% in the initial trading hours Monday, Under pressure from lingering global inflation concerns, expectations of a faster pace of rate hikes by the US Federal Reserve, and concerns over weakness in the Chinese economy, alongside the rising Covid-19 cases.
• The Nikkei in Japan fell up to 1.9 per cent, while Shanghai Composite in China fell by up to 1.3 per cent.

Reasons behind the fall

• Indian markets that opened after a gap of four days fell sharply in line with growing concerns over various developments, including the continuing Russia-Ukraine war.
• There have also been concerns over the European Union embargo on Russian gas, and some sanctions on Russian crude in the next set of EU sanctions.
• As inflation continues to remain a big concern, there are expectations in the market that the US Fed may increase the pace of rate hike;
• Instead of a 25 basis point hike, it could even go for a 50 basis point hike, experts believe.
• While the rate hikes were expected, a sharp increase could result in faster outflow of funds by foreign portfolio investors, and could keep the emerging economy markets and the domestic equity markets under pressure.

Chinese impact

• Another factor that has impacted the market sentiment is the concern over rising Covid-19 cases in China, and the slower than expected pace of growth of the Chinese economy.
• While Shanghai has been in lockdown since March, the city reported three deaths on Monday.
• Meanwhile China’s economy grew 4.8% in the first quarter as a Covid resurgence pulled down economic activity.
• The National Bureau of Statistics too warned of “significant difficulties and challenges.”
• Experts feel the restrictions in China are likely to hurt global supply chains and that could further lead to rise in inflation, which has already been impacted by the Russia-Ukraine war.

What next for Indian markets?

• Given the global scenario around geopolitical concerns and inflation, equity markets are likely to remain volatile in the near term.
• The FPI flows may remain unstable and may even witness an outflow in line with an expected increase in the pace of rate hike by the US Fed.
• Even domestic inflation, which hit 6.95% in March, continues to be a cause of concern for Indian markets.
• The continued pressure on account of inflation may force the RBI to also go for faster rate hikes.
• In its recently released monetary policy statement, the RBI signalled a shift in its focus from reviving growth to mitigating risks posed by inflation.
• Even as it kept the policy rates unchanged for now, it indicated a possible hike in repo rates going forward.

Q) The money market where debt and stocks are traded and maturity period is more than a year is known as?

1. Long-term market
2. Counter market
3. Capital market
4. Shorter term market

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