The reasons why Indian Stock market is falling
While the experts are complaining about high valuations, it has been observed from the benchmark indices that Indian stock market has been gradually moving downwards. It is a fact that when the corporate results of the third quarter was being pilloried as devastating, and a lot of analysts were rushing for reworking on the projections and downgrade forecasts, during that time, foreign investors were investing money in this country. The stock market was being subdued by the vexed issue of MAT, run up to 9000 for Nifty and 30000 for Sensex.
In such a scenario, it is really natural for a normal person to ask about what has changed. It has been observed that Nifty has fallen more than 10% from the mid April. It cannot be denied that India is one of lowest performing equity markets within the list of top 20 countries. A lot of people might argue that there have not been any major changes apart from MAT which is a major setback. But there are a lot of other reasons which clearly states why stock markets in India have been falling.
It is a fact that, with the withdrawal of Foreign Institutional Investors, there is immense pressure on Indian Rupee. Currency has an extensive impact on the returns that are earned by FIIs. The rupee has weakened against the dollar by 6% in the present fiscal, 5% in the overall calendar year and 9% throughout the previous year due to the weakness created by capital outflows. Weaker economic performance has led to currency weakness in India.
Surprise tax on foreign investors
The foreign investors are driving force behind any rally and those investors offer a huge amount of money within Indian stocks. But with the uncertainty in Indian taxes, they have stopped buying. This has resulted in a huge decline in the stock market of India. The tax system of India has definitely surprised investors with billions of dollars regarding back tax bills which foreign investors did not think they had to pay.
Poor Economic Numbers:
The primary reason is there does not seem to be any form of economic revival. Though, according to the present GDP there are certain signs of pick-up activity but the much awaited growth has not yet been observed. The way banking stocks are being hammered; there are very few signs of recovery in a near future.
One of the major reasons about the fall of Indian stock market is Asian Stocks have jumped to three year lows as Chinese equities gathered pace with Shanghai that slumped more than 8 percent. Concerns have deepened regarding the stalling economy of China that has rattled equity investors of the world. The China-linked shares have tumbled within early trading and adding more distress to that, a weak Chinese manufacturing data has been attained. Within mid August, China has allowed a pension fund of $547 billion. This is the world’s largest amount to be invested within volatile stock market.
Export market issue
The volatile and falling stock has also upset the Indian government’s plans for selling shares within state owned companies. It is a fact that a choppy market is not really feasible for a huge and ambitious investment target. With the valuation of a dollar at 67 Rupees, it is incurring a loss of Rs 3 for every dollar in 10days. For the exporters, weaker rupee would mean earnings in terms of rupees might go up, but it will slowdown in EU and India’s biggest export markets might face a dry out. And with the rupee continuing to fall, the price of house hold articles shall increase to a great extent.
Improper corporate earnings:
It is evident that Modi mojo has not been able to bring the corporate companies immense profits. There are very little signs of profit in the corporate sector. The projected growth rate of more than 30 companies is almost equal to 3% which is extremely disappointing. And if this prediction proves to be correct then India is going to face an extreme downfall in the stock market in the coming years also.
Lending the rate cut is not helping at all:
We have seen that the Central bank of India has cut down the key lending rate twice this year. But it cannot be said that this strategy has been very much helpful. Banks have been really reluctant for passing the benefits of lower rate taxes to the borrowers. The rate cutting strategy has been started very recently.
The rural demand has been siding:
Finally, the extreme heavy rains and floods in recent times have caused the price hike in commodities. Rural income has been hurt to a great extent and at the same time the hands of government are tid due to very weak tax revenue system.