The recent downturn in global financial markets has left investors in search of safer havens to protect their money. Here are some reasons which could explain the market tumbling:
1. High Inflation- The rate of inflation has been increasing, by 6.52% in January 2023. A high level of inflation can cause stock prices to fall as it has an impact on the company's forecasts for future profits.
2. Interest Rate Hikes- Central banks around the world have been constantly increasing interest rates to tame high inflation which brings a negative impact on the markets. The RBI has increased the repo rate to 6.50%.
3. Economic Slowdown- The latest NSO has marked a slowdown in the GDP forecasts, reducing it to 4.4% in December 2022 quarter against the 6.3% in the previous quarter.
4. Russia-Ukraine War- The market lacks uncertainty and unfavourable economic conditions such as the war hurts the global economies as there is an increase in geopolitical tensions.
5. Correction in Valuation- The new-age tech-based consumer companies like Paytm, Zomato and Nykaa have lost nearly half their value from their listing price, creating losses for investors. This has resulted in investors questioning the valuation of companies which can lead to correction in high-valued stocks.
6. Hindenburg Report- The Hindenburg report against the Adani Group of companies pushed the share towards lower circuits amid investor panic. The Adani companies had investments from LIC and public sector banks which triggered selling to protect against the falling shares, causing the markets to fall further.
7. Fall in Global Markets- The US markets have been impacted by a loss in the valuation of Chinese tech stocks and other local economic crises and markets which has impacted the FII’s investing in India.
8. Market Sentiment- Market sentiment can impact the investing decisions of investors. Under positive market sentiments, investors are positive in their about markets. In the same way, when the market sentiment turns negative, investors tend to rush to the exits in anticipation of negative market performance. The current market sentiment was in ‘Fear’ as reported by Tickertape.
9. Unemployment- The current unemployment rate is over 7% as reported by CMIE data. The recent times have seen a trend of mass layoffs in the tech companies. Unemployment has an impact on consumer expenditure as it reduces spending which hurts the economy.
10. Weakening Rupee- The Rupee has been weakening against the US dollar, $1 = Rs 81.71, increasing the cost of imports and reducing economic growth. The change in the exchange rate can impact the volatility in the stock market.
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