Why the stock market is falling?


A couple of factors are playing spoiler.

  • The coronavirus outbreak threatens to drastically change consumer behaviour, disrupt businesses and, thus, short-term earnings outlook takes a beating.

  • With no solution in sight to the coronavirus crisis, investor sentiment has taken a hit. They are rushing to prune riskier bets amid coronavirus pandemic fanning recession fears.

  • Sustained selling by foreign institutional investors, mainly ETFs, amid a global risk aversion. They have sold stocks worth nearly Rs 25,000 crore in March so far.

  • A nearly 50 per cent fall in crude oilNSE 8.70 % prices is also hinting for worldwide recession.
  1. Is my money safe in bank deposits?

    Bank deposits are considered relatively safer, especially given the fact that they are by nature risk-free and also there is an deposit insurance coverage of Rs 5 lakh on them. Going by history, RBI has not allowed any bank to fail in India, as it such an event can dent the confidence of investors and savers in the Indian financial system. The moratorium on withdrawals from YES BankNSE 2.00 % following the recent crisis may have dented confidence of savers, but RBI has time and again assured that depositors’ money is safe and the moratorium will be lifted soon.

  2. Why did the stock market halt trading?
    NSE’s Nifty hit the lower circuit of 10 per cent early on March 13, 2020 amid mounting concerns over the coronavirus pandemic. The lower or upper circuit limits are part of an automatic mechanism to stop a free fall or massive surge in a security or an index during trading hours. It is used to check volatile swings in the market. The index-based market-wide circuit breaker system applies at three stages of the index movement, at 10 per cent, 15 per cent and 20 per cent on either side. These circuit breakers, when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide.
  3. Gold is supposed to be safe haven. Why it is falling?
    Gold usually gains when there is risk aversion and equity is in a free fall, as it is considered a safe abode for investors. But gold prices have fallen in Indian market in the last couple of days despite share markets taking a plunge. The price of the yellow metal declined to Rs 43,228 per 10 gm on March 12 from Rs 44,315 on March 6. Analysts have attributed this anomaly to a selloff on the bullion counter by traders to finance margin calls in other assets hammered by panic over the coronavirus.
  4. Should I withdraw money from stock market & mutual funds?
    Withdrawing money from stocks or mutual funds at this stage may turn your temporary losses into permanent ones. The Indian equity market has seen this kind of swings earlier in 2008 and 2000-01 also. History suggests the market bounces back smartly after such drastic falls and produces many multibaggers. For instance, around 375 BSE-listed firms climbed between 300-1,47,854 per cent during the next five years after the market crash during the global financial crisis of 2008-09. Market experts advise investors to try and benefit from this crash by taking exposure to fundamentally sound companies in a systematic manner.
  5. Why is crude oil price falling?
    Before economies globally took steps to contain the damage coronavirus has caused, the face-off between Russia and Saudi Arabia turned ugly. Russia decided not to cut oil production and Saudi responded with a price cut. This caused Brent crude price to slip below $35 a barrel. This turned out to be a big shock to the US as break-even for the US drillers is somewhere in the high $40’s per barrel, as per market estimates. Lower crude oil price can be a silver lining for India. India imported around 225 million tonnes of crude oil in 2018-2019. “If we consider the price below $35 per barrel India can save round $50B in crude oil import bill. Even if the average price is $45 per barrel, around $30B can be saved. This can be a big positive in already stressed fiscal situation,” William O’Neil India said in a report.
  6. How long will these problems continue?
    Coronavirus came out of syllabus for the world, and back home Indian markets were already facing issues like a growth slowdown, weak earnings and corporate governance issues in several companies. The outbreak of coronavirus has added insult to the injury of an ailing economy. At present, there is no answer to the virus outbreak, as medical professionals have not found any cure for it. Meanwhile, the number of cases continues to surge. As soon as there is clue on a remedy or slowdown in new cases, the market will price in those factors.
  7. Where should I keep my money now?
    It depends on the risk profile of an investor. In general, equities are considered a risky bet compared with other asset classes such as bank fixed deposits, gold, bonds, etc. However, equities have outpaced other asset classes in the long term.