Today Nifty was trading down 3.25% and Sensex down 3.20%. In the last one week, both Sensex and Nifty have almost gone down 5.8%.
5 reasons why share market down?
1. Rising Inflation
Crude oil prices rising very fast. Crude oil prices are at record levels and have crossed more than $ 88.21 per barrel. Crude oil as we all know is a commodity on which almost all economic activity and industry is independent.
Therefore a rise in the price of crude oil leads to an increase in the price of goods and services and increases inflation, so you must have heard that the global inflation rate is also at its record levels.
When inflation increases, central banks take action to control it.
At the time of Covid-19, the central government and banks had announced relief and stimulus packages that brought excess liquidity to the market and all that money flowed into equity instruments (stocks and mutual funds).
But the Central Bank All Across the World is concerned about rising inflation and hence wants to absorb the access liquidity from the market to control it.
In such a situation, the central banks are accelerating their bond purchase plan.
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2. US Fed’s hawkish stance
The US Fed has also indicated that they can raise a series of interest rates that can last till 2023 and they can implement this plan sooner than expected.
Due to these reasons, the US 10-year G Sec bond yield is increasing and is almost around 1.9%. This yield is at the highest level since the pandemic.
The capital of the major institution mainly falls into two asset classes Equity and Debt. Thus, the rise in US 10-year G Sec bond yields is leading to an alternative development for equity instruments, which may allow large institutions to move money from equity to debt.
And if this happens, the selling pressure in the market could lead to such corrections, and institutions from emerging markets like India may start withdrawing their capital.
Due to the high valuation of the Indian market and some of these reasons, you must have also noticed that FIIs and FPIs have been net sellers in the Indian market for some time now.
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3. Rising border tensions between Russia and Ukraine
Rising border tensions between Russia and Ukraine. If Russia invades Ukraine, Western parts like the European Union and the US can impose sanctions on Russia and this can have an impact on the global market.
This is because Russia is a commodity powerhouse, the Russian supplier of natural gas, metal, and Agri products to many countries. For Instance, Russia is the largest exporter of energy products such as oil and gas.
Russia is also a major exporter of metals such as aluminum, copper, nickel, and platinum. Russia is also the largest exporter of wheat, so any sanction imposed on Russia will have a significant effect on the commodities market.
This will also have a huge impact on the Indian market as rising oil prices will increase the prices of goods and services and India is also dependent on Russia for its energy requirements.
4. New Omicron variant of Covid 19
The series of falls in the market with the Omicron variant is going on since last month. When there was a spike in covid cases all over the world due to the new Omicron variant of Covid 19.
Many countries started taking travel restrictions, lockdown, and different preventive measures.
In such a situation, there was a concern of the third wave of covid in India due to which lockdown can also be done, all these actions have a direct impact on the economy and business and due to this, the market started reacting negatively.
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5. Government of India will announce the budget
On 1 February 2022, the government will announce the budget. But according to experts, assembly elections will be held in 5 states soon after the budget and hence there is speculation that the central government may also announce a populist budget.
Due to which they get benefit in the coming election, then it may be that negative sentiment has been created in the market due to this. So these were all the major reasons due to which the market is going down.
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FAQ
1. Rising Inflation: Crude oil prices are at record levels and have crossed more than $ 88.21 per barrel. Crude oil as we all know is a commodity on which almost all economic activity and industry is independent.
2. US Fed’s hawkish stance: The US Fed has also indicated that they can raise a series of interest rates that can last till 2023 and they can implement this plan sooner than expected.
3. Rising border tensions between Russia and Ukraine: If Russia invades Ukraine, Western parts like the European Union and the US can impose sanctions on Russia and this can have an impact on the global market.
4. New Omicron variant of Covid 19: The series of falls in the market with the Omicron variant is going on since last month. When there was a spike in covid cases all over the world due to the new Omicron variant of Covid 19. Many countries started taking travel restrictions, lockdown, and different preventive measures.
5. Government of India will announce the budget: On 1 February 2022, the government will announce the budget. But according to experts, assembly elections will be held in 5 states soon after the budget and hence there is speculation that the central government may also announce a populist budget.
On 1 February 2022, the government will announce the budget.