Santosh Meena, Head of Research at Swastika Investmart Ltd, attributed the global market downturn to a combination of negative factors, saying, “The global market is reeling as bears enter with a cocktail of bad news.The fear of a reverse Yen carry trade, following an interest rate hike in Japan, was the initial catalyst. This was compounded by fears of a recession in the US after extremely poor jobs data, which spooked market sentiment.”
- An over 12% plunge in Japan’s Nikkei and geopolitical tensions in the Middle East negatively impacted market sentiment.
- Asian markets, including Seoul, Tokyo, Shanghai, and Hong Kong, settled sharply lower.
- Japan’s benchmark stock index, the Nikkei, plunged 12.4% on Monday, closing down 4,451.28 points at 31,458.42. The Nikkei had dropped 5.8% on Friday, marking its worst two-day decline ever. The worst single-day rout for the Nikkei was a 14.9% plunge on October 19, 1987, during the global market crash known as “Black Monday.”
- A report on Friday showing hiring by US employers slowed last month by much more than expected convulsed financial markets. Goldman Sachs and JPMorgan have shared a bearish view on the prospects of the US economy, with a rise in the possibility of a recession.
- Goldman Sachs analysts have observed the Federal Reserve’s capacity to restore market confidence, assigning a 25% probability to a recession in the United States.
- According to JPMorgan economist Michael Feroli, “Now that the Fed looks to be materially behind the curve, we expect a 50 bp cut at the September meeting, followed by another 50 bp cut in November.” Feroli further suggested that “Indeed, a case could be made for an inter-meeting easing, especially if the data soften further,” highlighting the potential need for swift action by the Federal Reserve to address economic concerns.
However, despite the drop in Indian stocks, analysts are confident of the medium-term prospects when compared to other Asian and emerging markets.
Are Indian stock markets resilient?
Chris Wood, head of global equity strategy at Jefferies sees resilience in the Indian stock market. “The Indian stock market is much more resilient than other Asian and emerging markets in the face of a U.S. downturn because the market is driven by domestic money,” Wood was quoted as saying by Reuters. “We are glad that 26% of our global long-only portfolio is in India given that this is the one market globally where there is unambiguously healthy demand for equity,” Wood added.
Tanvi Kanchan, Head – UAE Business & Strategy at Anand Rathi Shares and Stock Brokers points to the strong fundamentals of the Indian markets. “Concerns are growing about potential FPI outflows from India, especially since the country was the top-performing major market in July with a 4 percent return. Over the past 12 months, the MSCI India Index has surged by 37 percent, vastly outperforming the MSCI EM Index, which has risen by just 4 percent,” she says.
“This significant disparity is fueling worries about the sustainability of market valuations. Indian markets have come a long way from 2015, with the DIIs continuing to have strong support and resilience built in the Indian markets by holding ~16.2% of Indian equity vs ~10.4% back in March’15,” she tells TOI.
“The Indian markets have much stronger fundamentals and substantial amounts of domestic inflow to counterbalance the knee-jerk reaction from outflow of FIIs on the back of profit booking,” she notes.
Sandeep Raina, Executive Vice President-Research Nuvama Professional believes that Indian equity investors have no reason to panic. “It’s a small correction, which will settle in a few weeks. The market needed some reason to correct,” Raina tells TOI.
Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial said that equity markets globally were jittery as concerns surrounding the slowdown in the US economy and unwinding of Yen carrying trades spooked investors. “Going forward, we expect volatility to continue ahead of the RBI policy and multiple global headwinds. The US slowdown is a bigger concern and any commentary from US Fed officials should provide relief in the current environment,” Khemka told TOI.
He, too, is of the view that India stands strong with the support of healthy macros, strong participation from domestic retail and institutional investors, and inline Q1FY25 numbers so far.
What should investors do?
Khemka of Motilal Oswal says, “The valuation for Nifty is comfortable near its 10-year average at 21x one-year forward P/E. Hence we believe that any correction in Indian equities is a buying opportunity for the long-term investors.”
Nuvama’s Sandeep Raina recommends that this is a good time for those who have missed the opportunity to participate in the market. “In the meantime go for sector rotation like pharma and consumers,” he said.
Stock market crash today: Key Highlights
- The sell-off was widespread, affecting sectors such as banking, IT, metal, and oil & gas, and resulted in a staggering loss of over Rs 15 lakh crore in investor wealth in a single trading session.
- The BSE Sensex closed at 78,759.40, down 2,222.55 points or 2.74 percent, marking its worst single-day performance since June 4, 2024. During the trading day, the index dropped as much as 2,686.09 points or 3.31 percent to an intraday low of 78,295.86. Similarly, the NSE Nifty ended the day at 24,055.60, a decline of 662.10 points or 2.68 percent, also recording its worst single-day fall since June 4, 2024, when markets crashed more than 5 percent due to general election results.
- Investors lost over Rs 15 lakh crore in the market crash as the total valuation of BSE-listed companies fell to Rs 441.84 lakh crore on Monday. Losses on Friday amounted to Rs 4.46 lakh crore, bringing the total losses over two days to more than Rs 19 lakh crore.
- The BSE smallcap gauge dropped 4.21% and the midcap index plummeted 3.60% in the broader market.
- Foreign institutional investors (FIIs) offloaded equities worth Rs 3,310 crore on Friday, according to exchange data.