Investors wealth: The benchmark equity index has declined nearly 4 per cent in four consecutive trading sessions, resulting in a loss of more than Rs 8 lakh crore in equity investors’ wealth. At around 12 noon, the Sensex was down by 377 points at 59,086 and the Nifty50 was down 118 points at 17,635. On the other hand, there was a decline in all the indices including Nifty Midcap, Small Cap.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said in a note, “US markets remain weak for the fifth day in a row, with a decline in tech heavyweights from Nasdaq. Its impact is also visible on India’s tech sector, which remains heavily vulnerable.
Let’s take a look at the reasons behind this current decline.
1. Global market
The effect of the fall in the US markets is visible on the Indian market, where there was weakness on Thursday for the fifth consecutive day. A jump in global bond yields in anticipation of an interest rate hike by the US Federal Reserve has forced investors to avoid risk-taking and therefore include less risky assets in their portfolios. Currencies such as gold and the Swiss franc show strong risk aversion.
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2. Financial constraints
Not only America, but the financial situation in India is getting worse. Due to this, the Reserve Bank of India (RBI) is gradually moving towards normalization of liquidity. The call money rate touched a high of 4.55 per cent, up from 3.25-3.50 per cent in the previous month. Call money rate is the rate at which banks take overnight loans. Along with the jump in call rate, the tri-party repo dealing and settlement also touched a level of 4.24, which was around 3.5 per cent at the end of December.
3. Selling of FPIs
Foreign portfolio investors: Foreign portfolio investors continue to sell-off as they exit expensive markets and move to attractive value markets such as Japan and Europe amid rising global bond yields. Overall, foreign investors have sold over Rs 1 lakh crore since October.
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4. Margin and Demand Concerns
Earnings of Indian companies for the quarter ended December so far have indicated heavy pressure on their operating margins and are impacting their profitability. While initial commentary from companies like Hindustan Unilever indicated pressure on the rural economy, Bajaj Finance said earlier this month that even low-income consumers in urban areas have been affected by the pandemic.
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