Before the Lok Sabha Election results, the BSE Sensex dropped from 75,390 to 74,030 over the past three sessions.
What’s causing the Stock market’s decline? And why has the Sensex dropped by 1200 points for three consecutive days?
Here are 5 reasons:
1. Lok Sabha Election Uncertainty
Avinash Gorakshkar, who leads research at Profitmart Securities, explained that the Indian stock market is dropping because the India VIX, a measure of market volatility, is going up. This suggests that the market will likely be very uncertain until the Lok Sabha Election results are announced. Even after six phases of voting, investors are still unsure about what kind of government will come into power. That’s why the market has been falling for five days in a row.
2. Rising Yields on US Treasury Bonds
Siddhartha Khemka, who heads Retail Research at Motilal Oswal, mentioned that better-than-expected consumer confidence data and strong statements from US Fed officials caused US Treasury yields to rise to a one-month high. He also noted that while foreign institutional investor (FII) selling has slowed down, there’s growing caution as we approach a major event, leading to profit-taking.
3. Tension in the Middle East
Deepak Jasani, who leads Retail Research at HDFC Securities, explained that on Wednesday, global stock markets went down because bond yields increased and oil prices surged. This happened because of tensions in the Middle East, specifically a new attack on a ship in the Red Sea. This made people worry that interest rates might remain high for a longer time.
4. Monthly Expiry
Avinash Gorakshkar from Profitmart Securities explained that today, the main Indian stock indices like Sensex and Nifty are dropping due to the monthly expiry. The roll-over rate, which is the rate at which contracts are moved from one expiry period to the next, started slowly in the morning, contributing to the decline. However, he expects the roll-over rate to increase later in the day, possibly leading to some recovery in the second half.
5. US Fed less likely to cut rates
Gorakshkar mentioned that because oil prices are rising and tension in the Middle East is increasing, it might push up US inflation. This was echoed by US Fed officials’ hawkish comments. Consequently, with higher interest rates, the US dollar and Treasury bonds will likely become more appealing for investors than other options like gold or stocks. This decline in the Indian stock market should be understood in this context.
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