The Sensex fell by nearly another 1,000 points in early trade on Tuesday (Feb. 06). There’s a little more at stake than just taking an excuse to blame and shame the govt.
What Exactly Happened
The epicentre of this mess is Wall Street. It was the worst fall for investors since August 2011. It started with Donald Trump’s nominee Jerome Powell, who will take charge as the chairperson of the US Federal Reserve. But why the slump, you ask?
The reason for Dow Jones’s slump by 1,175 points on Feb. 05 is the fact that the economic scenario of the United States is not as full of optimism as India’s, though President Donald Trump would claim otherwise.
The US stock market has simply reacted over the facts coming out of the US, which claims that the wages are rising which shall automatically prompt the inflation figures to go beyond the target set by Fed, eventually leading to higher interest rates.
Now, when the worlds biggest economy is facing a critical time, the inevitable instability of fund flow into the emerging markets like India would put the investors in doubts, and so the traders started pulling off their money. Quartz has called it the collateral damage in the global script.
Who all have been affected and how much?
Percentage drop in different stock indices
How are people responding?
It would be utterly stupid to claim that this slump was brought by the budget alone. Yes, the not so pro-rich budget did have an impact on the stock market, but that was minimal and would have adjusted itself. On the other hand, it would be even more stupid if the investors were ignorant enough to think that the market will keep extending its growth.
Recently, when the economic survey 2018 was released, Business today carried a story hinting at the stock market bubble which became allusive with the availability of the Economic Survey.
Speaking to media after presenting the Economic Survey Report, Arvind Subramanian, the Chief Economic Advisor said, “We have seen around the world that when asset prices go up very much, they always tend to come back and so we have to be watchful. The higher the prices go, I think our vigilance should increase correspondingly.”
Over today’s setback, Ritesh Jain, chief investment officer at BNP Paribas Mutual Fund told HT, “Indian markets are mirroring the freefall in world equities. The fear of inflation firming up, and hardening bond yields led to increase in US VIX and send the US market spiralling down, with momentum strategies adding to the domino effect.”
Next in line on stock trader’s mind is the Reserve Bank of India’s (RBI) interest rate decision on 7 February. Experts expect the regulator to keep interest rates on hold over expectations that inflation may accelerate further, thanks to higher crude oil prices and a proposed hike in minimum support prices (MSP) for farmers.
PS: Many would wonder if this is the right time to invest, well technically the slump isn’t over, so it’s better to wait and watch, especially where the oil prices are headed.