Indian Market Spiralling Down: Time for Caution or Opportunity?

Indian Market Spiralling Down: Time for Caution or Opportunity?

Indian markets have given optimum returns in recent times despite the global market consensus by outperforming the global indexes. As per reports, Indian markets have delivered 18.8 per cent annualized return over the last five years. In comparison, US and Japan Index delivered 6.9 per cent and 12.1 per cent returns. However, the last week in Indian markets has seen a downtrend eroding wealth due to sudden stock market crash. Sensex which was well above 66,400 levels has lost over 3,300 points in a mere six trading sessions, closing at 63,148 levels on Thursday (26 Oct). 

So what happened in these six trading sessions that resulted in such a stock market crash today? Let’s explore the major reasons for it: 

Overview of the Indian Market Downtrend

The existing risk-off in the global equity market marred by the geopolitics of the Israel-Hamas conflict and economic factors like US bond yield, and FII’s selling-off Indian stocks have collectively caused the headwind for the market downfall. 

Also read: India Solidifies Its Position as the Most Preferred Emerging Market: Morgan Stanley

4 Key Reasons Why The Indian Stock Market Crashed

  1. Israel-Hamas War
    • The ongoing Israel-Hamas conflict has already entered its 20th day and there are no signs of it fizzing out any time soon. The tension has already shown its effect firsthand in the Middle East and around the globe causing panic among investors and triggering sell in major exchanges inducing stock market crash.
  1. US Treasury Yield Rise 
    • The 10-year US Treasury Yield rose above 5% for the first time in 16 years causing retracement among investors. US Treasury yield marks as a measure of how much it costs the American government to borrow. This rise in yields has impacted the broader markets and caused a domino effect in the stock exchanges of the world. 
  1. Disappointing Q2 Results
    • The last week saw an influx of Q2 results from Dmart, TCS, ICICI Bank, Infosys, Asian Paints, Kotak Mahindra Bank, etc. Major companies reported an underwhelming Q2 performance in the market eroding the attraction of the investors. Even companies with good reports are not able to attract the kind of investment they should due to the overall market sentiment.  
  1. FIIs’ Selling
    • Foreign Institutional Investors (FII) have been continuously selling in the Indian equity market in the last few weeks. With the US Dollar Index affixing itself above 106 levels for the last week, FIIs have been shifting their money from emerging markets of India to other asset classes abroad. The US Dollar Index and Indian markets have an inverse relationship where and when the dollar index falls, FIIs invest more in the Indian market as it gives more return per se as compared to returns from the dollar. 

Also read: Top 5 Key Takeaways for NRIs from Mirae Asset Mutual Fund Economic Outlook 2023

The Looming Horizon: Time for Caution or Opportunity?

The conundrum of Fear vs. Greed holds true for the stock market and such a sudden market downtrend often pushes investors into panic selling and retreating from the markets. But is that warranted? 

Not if, you’re a long-term investor and your long-term goals haven’t changed. As a long-term investor, timely corrections are part of the investment horizon, and staying invested is the right choice to create long-term wealth. 

Such a sudden market downtrend also presents an opportunity for entry points where you can top up your investments with lumpsum or SIPs, allowing you to buy more units at lower prices and average out your costs. An informed market decision can help you turn this moment into a perfect opportunity for entry and long-term wealth creation. 

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