Why is indian stock market falling down?

As rates go higher, investors will move funds out of equity and into fixed income assets. This process has already begun and is likely to accelerate going forward. Another reason for the fall in the market has been the relentless selling by Fins. Since October 2021, they have sold more than ₹3.5 lakh crore...

The fear of a global recession is the biggest reason at the moment. And the markets seem justified to worry about that. However, falling stock prices will create excellent buying long-term opportunities in fundamentally strong stocks. And investors should not miss out.

Domestic stock markets and the rupee faced rough weather in early trading on Monday, as the sharp rise in US inflation triggered concerns over more aggressive rate hikes and stronger capital outflows. The benchmark Sense was quoting 1,422 points down at 52,881.23 and the Nifty Index was trading 408 points lower at 15,793.15 as of 12.15 noon IST

No More Easy Money:

When the Covid-19 Pandemic hit, every government in the world turned on the money tap. They spent heavily to stimulate their economies during the lockdowns.

The Central banks flooded the world with newly printed money. There was so much liquidity in the economy, that the people started investing in the stock market. In October 2021, The Nifty soared to 18,500 points from 7,800 in March 2020 

But now Governments are winding up their covid economic support programs. Central banks have stopped printing money. In fact, the US Fed will soon reverse the process by withdrawing the funds it pumped in. Therefore, now there will be a liquidity crunch in the economy. Thus, people will invest less in the stock market and many will even try to sell the stocks.

Rising Interest Rates:

Interest rates have started rising all around the world. In the recent RBI Monetary Policy dated 4th May 2022, the Reserve Bank of India raised its repo rate by 0.4% and cash reserve ratio by 0.5%.

The market went down in anticipation even before the announcement and crashed after it. But the reason for the crash is much deeper than a rate hike.

The yield of the 10-year US government bond is the global benchmark for long-term interest rates. It is negatively correlated with the global stock markets. 

As this rate goes up, the value of stocks declines. This leads to heavy selling in the market. The 10-year US bond yield has risen from 0.5% in August 2020 to about 3% at present.

In India, the 10-year government bond yield has increased from 6.8% in July 2020 to 7.4% now. In Intraday trade, it went up from 7.1% to 7.4%.

The stock market is a volatile place. Hence, there have been times when markets have crashed and caused losses to investors within no time. A crash is usually defined as a rapid double-digit fall in indices. While the markets have always recovered, sometimes, the impact of a crash has lasted for years. 

Today, we are going to turn the pages of history and look at various known and unknown stock market crashes in India.