Investing in a stock market feels like a roller-coaster ride to investors as there are many ups and downs in the market. Various events and factors like interest rates, market conditions, and demand & supply define the movement in the Indian stock market. For instance, if the market has confidence in the economy, the market starts soaring but if any natural calamity occurs, the market sees a correction, the degree of which depends on the severity of the event.
Before heading forward, let’s understand what market rally and market crash mean. The market is up means a situation when the stock market trades higher than it was at any time in the past. While a market crash is when the market falls suddenly or in a day or two, resulting in a significant loss to the investors.
Now, we will take a quick look at the major events that either soared or shook the Indian stock market in the last 10 years.
- Political Situations
Sensex and Nifty – Benchmark indices of Indian equity witnessed a record high as the Lok Sabha election results came in the year 2014. The market went up as investors’ sentiments were positive which means the results were as expected by the market. This positive sentiment arose from the fact that a pro-reform Government was coming to power with an overwhelming majority and people believed that the economy would grow at a faster pace. On that day, the NSE surpassed the 7500 mark to reach an all-time high at 7563.50 points.
Remember when the ruling government on the evening of 8th November 2016 suddenly made Rs. 500 and Rs. 1000 notes non-functional? Who can forget that, right? This act in which the current form (s) of money is retired and pulled out of circulation, generally, to be replaced with a new form (s) is known as Demonetization. Even though this step causes a cash crunch, it was taken in order to bring more stability to the economy, fight corruption, and provide more transparency to informal activities.
The announcement of demonetization decreased consumers’ purchasing power, thus, impacting the sale in various industries such as automobile, real estate, and more. This resulted in the fall in the stock prices of companies leading to a downfall in the stock market. NIFTY50 registered a 5.1% fall in the daily closing price as compared to the closing price on the date of the announcement, the week after it was announced.
- IL&FS Crisis
In September 2018, IL&FS Infrastructure Leasing & Financial Services, the NBFC (Non-banking Financial Company) major, defaulted on an obligation of a short-term loan worth Rs. 1,000 crore from the Small Industries Development Bank of India (SIDBI). Apart from this, its subsidiary also defaulted dues worth Rs. 500 crore to the development financial institution. This situation arose as IL&FS faced asset-liability mismatch and had trouble meeting its near-term obligations that were falling due. Also, new projects were on a decline and it was facing delays in land acquisitions & approvals of the projects they were working on. This led to fear in the market that any financial institution could face a liquidity crunch, resulting in more similar situations. Investors’ fear could be seen as the BSE Sensex shed 2000 points in merely a week.
In January 2020, when the first case of COVID-19 was reported, people thought it was just panic and it would end soon. But then in March 2020, we witnessed the world coming to a standstill. The reports of rapidly increasing COVID-19 cases worried investors as they feared uncertainty, resulting in a very sharp decline in the market. On 23rd March 2020, the closing price for NIFTY 50 was 7601.25 on 23rd March 2020, compared to 11303.30 on 03rd March 2020, while BSE SENSEX reported a downfall of 4000 points i.e. from 29,915.96 on 20th March 2020 to 25,981.24 on 23rd March 2020. The lockdown which was imposed didn’t bring any relief to the market, however, the market started recovering after a certain period. Know more about the impact of COVID-19 on the stock market here.
- Crude Oil Price Reduction
Because of the COVID-19 lockdown, the world came to a standstill that resulted in a monumental oil price crash. From tyres, lubricants, paints, airlines, logistics, energy to refinery, all the industries are directly affected by the change in the oil prices.
On 20th April 2020, the price of West Texas Intermediate (WTI) barrel (the US oil benchmark) hit an all-time low at minus $37.63 per barrel. And on 21st April 2020, Brent crude (global key and European benchmark) was trading around $26 per barrel. With this dramatic fall in oil prices, production costs/operating costs got lower for these industries and resulted in higher stock prices. Even though the stock market didn’t soar, NIFTY Energy saw a steep increase in its closing price from 11721.90 points (15th April 2020) to 12402.50 points (20th April 2020). Apart from this, the stocks of the paint industry also traded high.
- Corporate Tax Cut
Corporate Tax is a tax levied by the government on the net income of the company. On 20th September 2019, the BSE index registered its biggest gain since 2009 as it witnessed a jump of 5.03%, while the NIFTY rallied 569 points in a single day. This was after the Financial Minister announced a cut in this corporate tax rate. The government took this historical decision of cutting the corporate tax from 30% to 22% without incentives and from 25% to 15% for new manufacturing entities in order to reignite the economy.
Indian stock market soars and crashes due to various reasons like change in political situations, major steps like GST, demonetization by the government, unexpected events like blockage of Suez Canal, decline in the interest rates, budget, international market crashes, and more such factors & events. When the market rallies, investors earn good returns, however, the investors start panicking when the market starts going down. You must understand that even though the stock market is volatile, it is a preferable avenue to generate wealth over a longer period of time as it has the ability to recover from crashes. So, take your decisions accordingly considering that the market can go up and down at any time.