Why are the stock markets seeing a free fall ?
There has been a decline of over 1200 points in BSE Sensex and NSE Nifty fell by over 350 points in last 3 days (June 01 to June 03). What is worse is that this has happened soon after RBI announced a cut in Repo Rate. Why is it so ? No one seems to know the real answer to this sharp decline though there are hundreds of self styled experts offering their comments and opinions on a routine basis.
While trying to analyse this from the information readily available and have observed a few issues :
1. RBI cut the Repo Rate by 25 basis points but made some undesirable comments like front loading, adding hints that there will be no further rate cuts in near future, etc., which were seen as unpalatable by the industry and the players in the stock markets. RBI followed up and aggravated it by saying that why should a growing economy need the crutches of rate cuts. This took away the joy out of the cut.
2. It is also seen that markets had fallen sharply even after RBI had cut the Repo Rate the last time. It seems that the players in the stock markets had already taken long positions in anticipation of the rate cut by RBI and decided to book profit soon after the announcement was made by RBI.
3. It is also true that despite the positive vibes created in the last few months, the actual results of the companies were not so heartening. It is also seen that there are hardly any new projects coming up and the exports of the country have been falling on a regular basis. This is acutely worrisome.
4. It may also be observed that the new dispensation at the centre just completed its one year in power and perhaps the markets were expecting some cheering news and big announcements but none came. This too could have disappointed some of the investors and disheartened they decided to book out.
5. One disturbing fact that comes to mind is the announcement regarding the possibility of lower than average rainfall this season, and as it came during trading hours, it created panic in the markets.
6. It is also a fact that after the advent of the online trading, there is a huge spike in the numbers of short term traders, as against the long term investors, and they react quickly to every market move. This aggravates the situation manifold and the move, up or down, gets accentuated within minutes.
7. Also, it is seen that the investors, and mainly the foreign investors, flocked to the markets during and after the run up to the last general elections. It may be seen that the markets have seen a huge spike in the last one year and some of these investments have now crossed a period of one year. It may be noted that stocks must be held for a period of one year is mandatory for availing the benefit / concession under capital gains tax, and now since the time is ripe, investors are now booking profits.
And lastly, it appears that all the good work done by the ruling party so far has not been enough to enthuse the investors to continue to hold the stocks and they might be booking out for now, to return as and when they feel that the time is good for making a reentry in the markets.
So keep the hope alive. All the investors are not going to run away and the markets will soon revive.
There has been a decline of over 1200 points in BSE Sensex and NSE Nifty fell by over 350 points in last 3 days (June 01 to June 03). What is worse is that this has happened soon after RBI announced a cut in Repo Rate. Why is it so ? No one seems to know the real answer to this sharp decline though there are hundreds of self styled experts offering their comments and opinions on a routine basis.
While trying to analyse this from the information readily available and have observed a few issues :
1. RBI cut the Repo Rate by 25 basis points but made some undesirable comments like front loading, adding hints that there will be no further rate cuts in near future, etc., which were seen as unpalatable by the industry and the players in the stock markets. RBI followed up and aggravated it by saying that why should a growing economy need the crutches of rate cuts. This took away the joy out of the cut.
2. It is also seen that markets had fallen sharply even after RBI had cut the Repo Rate the last time. It seems that the players in the stock markets had already taken long positions in anticipation of the rate cut by RBI and decided to book profit soon after the announcement was made by RBI.
3. It is also true that despite the positive vibes created in the last few months, the actual results of the companies were not so heartening. It is also seen that there are hardly any new projects coming up and the exports of the country have been falling on a regular basis. This is acutely worrisome.
4. It may also be observed that the new dispensation at the centre just completed its one year in power and perhaps the markets were expecting some cheering news and big announcements but none came. This too could have disappointed some of the investors and disheartened they decided to book out.
5. One disturbing fact that comes to mind is the announcement regarding the possibility of lower than average rainfall this season, and as it came during trading hours, it created panic in the markets.
6. It is also a fact that after the advent of the online trading, there is a huge spike in the numbers of short term traders, as against the long term investors, and they react quickly to every market move. This aggravates the situation manifold and the move, up or down, gets accentuated within minutes.
7. Also, it is seen that the investors, and mainly the foreign investors, flocked to the markets during and after the run up to the last general elections. It may be seen that the markets have seen a huge spike in the last one year and some of these investments have now crossed a period of one year. It may be noted that stocks must be held for a period of one year is mandatory for availing the benefit / concession under capital gains tax, and now since the time is ripe, investors are now booking profits.
And lastly, it appears that all the good work done by the ruling party so far has not been enough to enthuse the investors to continue to hold the stocks and they might be booking out for now, to return as and when they feel that the time is good for making a reentry in the markets.
So keep the hope alive. All the investors are not going to run away and the markets will soon revive.
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