The NSE benchmark Nifty50 index has experienced a significant decline of over 1.5% on Monday, following a drop of more than 1% on the previous trading day. This cumulative fall of over 2.5% in just two trading sessions has caused the index to slip below the 20-day moving average (DMA), a crucial indicator for short-term traders. Let’s delve into the key reasons behind this sharp fall in the Indian markets.
One of the primary catalysts for the market decline is Japan’s recent decision to hike interest rates from 0% to 0.25%. This move marks the end of an era, as Japan has maintained near-zero interest rates for almost three decades. The Bank of Japan’s decision has led to the unwinding of the “Yen Carry Trade.” In this strategy, investors borrowed cheaply in yen to invest in higher-yielding currencies or assets. With the yen now strengthening to its highest level against the US dollar since March, these trades are being reversed, impacting global equities and other asset prices. The Japanese index Nikkei has plunged more than 20% in recent weeks, dragging down other Asian markets along with it.
Fears of a recession in the United States have further exacerbated the market downturn. The Nasdaq index fell by 2.43% on Friday, with tech stocks taking a massive hit. Notably, Intel’s shares plummeted by 26%, while Amazon saw a 9% decline. The recent high unemployment numbers in the US have reignited concerns about potential recessionary pressures. The anticipated rate cuts have been delayed, and economic growth has not met expectations, adding to the market’s woes.
Geopolitical tensions, particularly in the Middle East, have also contributed to the global market weakness, inevitably affecting Indian markets. The instability in the region creates uncertainty, leading to cautious investor sentiment and heightened market volatility.
The latest quarterly results have not provided the necessary support to sustain market levels. While some companies have reported mixed outcomes, the overall performance has been underwhelming, failing to boost investor confidence.
Lastly, the Monday Effect may have played a role in the recent market behavior. This theory suggests that stock market returns on Mondays tend to follow the prevailing trend from the previous Friday. Given the negative sentiment from the end of last week, it’s plausible that this psychological factor influenced the sharp decline observed at the start of the week.
The confluence of these factors—Japan’s rate hike and the unwinding of the yen carry trade, US recessionary fears, geopolitical tensions, disappointing quarterly results, and the Monday Effect—has culminated in a significant sell-off in the Nifty50 index. I
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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