Hello Traders & investors,
Today was a challenging day for the Indian market as the Sensex hit a seven-month low and closed near the lower levels. In this situation, most retailers panicked and began selling, which has been a major contributor to the recent drastic fall. Foreign Institutional Investors (FIIs) are also selling, but this isn't significantly impacting valuations since Domestic Institutional Investors (DIIs) are buying at similar or higher valuations. Additionally, the inflow from SIPs and mutual funds remains strong according to the monthly data.
So, what are the reasons behind the fall in the Indian stock market?
- Economic Uncertainty Due to US Politics: The uncertainty surrounding the potential return of Donald Trump as US President has raised concerns among global markets. Countries that heavily rely on trade with the US, such as China and Japan, may face significant challenges. This political uncertainty is causing investors to be cautious, impacting market sentiment and contributing to volatility in the Indian stock market.
- Cautious Sentiment Amid Q3 Results Season: Investors are exhibiting caution due to weaker-than-expected Q3 results from major companies like Infosys. Additionally, there is ongoing selling pressure in the banking sector. Despite expectations of strong Q3 results from Indian banks, these concerns are making investors hesitant to commit to new positions, leading to a subdued market environment.
- Rising US Dollar and Bond Yields: The US dollar remains strong, and US bond yields are on the rise. As a result, investors are reallocating their funds from equities and other assets to US bonds and the currency market. This shift is causing a drop in the Indian stock market as capital flows out of equities. On January 17, as of 12:24 PM, the US dollar weakened slightly as traders evaluated mixed economic data and speculated on potential Federal Reserve rate cuts. The dollar index fell 0.05% to 108.98. Bond yields also dropped, with the 10-year yield down to 4.615%, the 30-year yield at 4.8556%, and the two-year yield at 4.239%.
- Selling by Foreign Institutional Investors (FIIs): Foreign Institutional Investors (FIIs) are selling in Indian markets due to the attractive returns available in US bonds and currency markets. Meanwhile, Domestic Institutional Investors (DIIs) are holding off on buying and are waiting for the Union Budget 2025. This cautious approach by DIIs is contributing to the downward trend in Indian stocks, as the lack of domestic buying support exacerbates the impact of foreign selling.
- Uncertainty About US Fed Rate Cuts: The uncertainty over when the US Federal Reserve will cut interest rates is also affecting the Indian market. Despite a slowdown in US inflation, the Fed has indicated that it won’t lower rates until inflation concerns ease further. This uncertainty is preventing domestic investors from buying stocks and is counteracting the foreign selling pressure. As a result, the Indian stock market is experiencing increased volatility and downward pressure.
The Indian stock market has faced a challenging environment due to a combination of economic uncertainty, cautious investor sentiment amid the Q3 results season, and the rising strength of the US dollar and bond yields. Selling by Foreign Institutional Investors (FIIs), coupled with domestic institutional investors' wait-and-see approach ahead of the Union Budget 2025, has added to the pressure. Additionally, the uncertainty about when the US Federal Reserve will cut interest rates has also contributed to the market's volatility. Together, these factors have resulted in significant declines in Indian stock indices, highlighting the interconnectedness of global economic and political factors with the domestic market sentiment.
I hope you liked my answer and hope it will help you too. Please share your feedback regarding my answer and keep upvoting and sharing.
Thank you
Thinking Boxx 🙏🙏🙏
0 Comments