Nifty and Sensex decline in the face of flimsy global cues: these five things depress sentiment
Investors anticipated that the US Federal Reserve, the earnings season, and the budget will provide more market indications. But now that these are all done, there are no new catalysts for the markets to gain traction.
Indexes used as benchmarks Following weak global signals and recessionary fears that undermined confidence across sectors, Nifty and Sensex got off to a poor start on the bourses, extending losses for the second day in a row.
The Nifty was down 378.00 points, or 1.53 percent, at 24,339.70, and the Sensex was down 1,273.99 points, or 1.57 percent, at opening. A little over 439 shares rose, 2362 shares fell, and 158 shares remained constant.
Undoubtedly, US futures saw significant losses, with Nasdaq futures falling more than 2% and the Nasdaq entering a correctionary phase given that the index has dropped 10% from its peak. Japan’s markets have suffered the most in Asia, with the Nikkei and Topix falling as much as 7%.
Let’s examine the main causes of the bears in the market right now!
1. Fears of Recession
The Sahm Recession Indicator, which flashes above the 0.5 level and suggests that a recession may be imminent, has raised concerns about the US entering a recessionary phase. However, what caused the indicator to light up?
In July, the US saw a sharp slowdown in employment, adding only 114,000 jobs as opposed to the average of 215,000 jobs each month in previous year. Furthermore, the jobless rate has increased to 4.3%, the highest level since October 2021.
Global stock markets have been rising mostly because of the general opinion that the US economy will have a gentle landing. But when this faltered, every element worked together to create a bad feeling among investors. On Friday, the US markets collapsed, recording their worst day since 2020.
2. Policy of the BoJ
Not only are the US markets collapsing, but the Nikkei 225 in Japan is too, as the Bank of Japan hiked its benchmark interest rate on Wednesday. The increase increased the Japanese yen’s worth relative to the US dollar.
Low interest rates led to the employment of the Japanese Yen in the “carry trade” forex strategy. This meant taking out a loan in Yen and making investments in assets with greater yields. But, the BoJ’s decision to raise interest rates might be quite painful for forex traders utilizing this method and further agitate the world markets.
3. Tensions between Israel and Iran
The Middle East is experiencing heightened tensions due to the pledges made by Iran, Hamas, and Hezbollah to exact revenge on Israel for the murder of Hamas’s leader and Hezbollah’s military chief.
Rising Middle East tensions would cause oil prices to soar. But as demand declines, oil prices are already at an 8-month low. As a result, keen eyes will be trained on the Middle East for clues on crude prices.
“Tense geopolitical conditions in the Middle East also have a role. The unwinding of the Yen carry trade, which is causing the Japanese market to collapse, is another important element. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that the Nikkei fell by more than 4%.
4. A tepid first show
According to Motilal Oswal, the earnings growth for the quarter ended June was modest, decreasing about two percent on-year, due to a poor transaction climate, a record heatwave, and lackluster demand.
The thirty Nifty 50 businesses who have released their earnings thus far show a 0.7 percent year-over-year increase in net income but a 9.4 percent quarter-over-quarter fall. The performance of the whole was severely hampered by the global commodities market.
Leading companies influencing the aggregate include HDFC Bank, Tata Motors, ICICI Bank, Maruti, and TCS. Nonetheless, the BFSI and Auto industries have been the main drivers of growth.
5. Lack of new short-term triggers
Investors anticipated that the US Federal Reserve, the earnings season, and the budget will provide more market indications. But now that these are all done, there are no new catalysts for the markets to gain traction.
According to Prashanth Tapse, Senior Vice President at Mehta Equities, “two negative factors prevail: a lack of significant positive surprises in Q1 June earnings from Corporate India and overbought technical conditions.” “Volatility will be the hallmark of the day,” he stated.
Nifty Auto, Realty, and Metal were the most severely impacted sectors, plunging about 3 percent apiece.
Only Sun Pharma and HUL were the top gainers on the Nifty index on the stock exchanges. The underachievers were ONGC, Tata Steel, Hindalco, Shriram Finance, and Tata Motors.
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