Economic Developments Trigger Global Sell-off: Impact on Sensex and Nifty
Economic developments in the U.S. and Japan triggered a sell-off by investors in capital markets around the world. As a result, major indices Sensex and Nifty in the domestic capital market fell by more than 2.5 percent.
Reasons Behind the Market Decline
1. Economic Concerns in the U.S.
- Recession Fears: The upcoming presidential election in November has already sparked recession talks in the U.S. Recent data released on Friday indicated slower-than-expected job growth in July.
- Job Growth: Only 114,000 job openings were reported in July, compared to last year’s monthly average of 215,000.
- Unemployment: The unemployment rate rose to 4.3 percent, the highest since October 2021.
- Sahm Recession Indicator: This index has surpassed 0.5 percent, signaling potential economic downturns.
2. Bank of Japan’s Policy Changes
- Interest Rate Hike: The Bank of Japan raised key interest rates for the first time since 2007, increasing them from -0.1 to 0-0.1 percent.
- Impact on Carry Trade: The increase disrupts the “carry trade” strategy, where investors borrow in yen and invest in higher-yielding assets. This policy shift has led to a decline in the Nikkei index and is expected to cause further turmoil in global markets.
3. Geopolitical Tensions
- Middle East Conflicts: Tensions between Iran, Hamas, and Hezbollah, and their threats to retaliate against Israel, have heightened regional instability.
- Oil Prices: While crude oil prices are currently at an 8-month low due to subdued global demand, these geopolitical tensions have the potential to drive prices higher.
4. Domestic Factors
- RBI Monetary Policy: The Reserve Bank of India is expected to maintain current interest rates due to rising food inflation.
- Corporate Performance: Disappointing quarterly performance of companies in the Nifty Fifty index, with 30 out of 50 reporting declines in profits, including major players like Reliance Industries and State Bank of India.
5. Market Volatility
- India VIX Index: The India VIX index, which measures market volatility, hit a 9-year high on Monday, jumping from 22 points to 52 points in one session. This indicates significant market fluctuations driven by U.S. recession fears, Japan’s interest rate hikes, and geopolitical tensions.
Impact of the Fall
- Investor Losses: Investors have lost around Rs 17 lakh crore due to Monday’s market decline.
- Sensex and Nifty Performance: The Sensex fell by 2600 points, while the Nifty broke the 24,000 level, reaching a session low of 23,893.
- Market Capitalization: The market capitalization of listed companies on the Mumbai Stock Exchange dropped by around Rs 17 lakh crore, falling to Rs 440.16 lakh crore.
The combination of international economic concerns, domestic challenges, and geopolitical instability has created a perfect storm, leading to significant losses in the capital markets. Investors remain cautious as they navigate these turbulent times.
