Indian stock market sees steepest correction: Know the cause
What's the story
The Indian stock market has had a nightmare of a start to 2023. In the first three months of this year till date, Indian stocks have lost 11% in market capitalization (m-cap), most among the world's top markets.
Both Sensex and Nifty have been suffering the past few weeks. Let's take a look at what's causing this rout.
Context
Why does this story matter?
In March last year, India broke into the 'Top 5' club in terms of market capitalization. A year later, the country is the worst-performing among the top 10.
The market has witnessed multiple instances of bloodbaths this year. It has been under immense selling pressure since mid-January.
Both domestic and global factors have contributed to the Indian stock market's problem.
Fall
India is currently out of the top 5 club
Indian stock market's m-cap is currently at $3 trillion. It is now out of the 'Top 5' club and is placed sixth, below the US, China, Japan, Hong Kong, and France.
In the Top 10, apart from India, only one other country recorded a decline in m-cap-Canada, with a 0.98% drop.
The UK is closely behind India with an m-cap of $2.93 trillion.
Adani
Adani Group stocks were on free fall for a while
Now, let's understand the factors that affected India's aggregate m-cap. The first among them is the rout of Adani stocks.
After a report by American short-seller Hindenburg Research accused the conglomerate of accounting fraud and market manipulation, the stocks of the group's listed companies were on a free fall for some time.
At one point, the group's m-cap fell below Rs. 7 lakh crore.
Sensex
Sensex has been consistently trading below 60,000 points
The last three months have mostly been a bloodbath on Dalal street. More often than not, indices were in a bear hug.
At the end of trading on January 1, the BSE Sensex closed at 61,168 points. The Sensex is now consistently trading below the 60,000 mark.
This year's highest so far was 61,319.5 points, while the lowest was 57,555.9 points.
Nifty
Nifty suffered a 6% drop last month
Like Sensex, Nifty has also been struggling this year. The index touched its highest at the beginning of this year when it closed at 18,232.55 on January 3.
It has been on a consistent decline since then. This month, it went below the 17,000 mark.
Both Sensex and Nifty suffered a 6% drop last month.
Sell-off
FPIs offloaded equities in January as well as February
Indian market is under massive sell-off pressure. Foreign investors are pulling their money from the market.
In February, foreign portfolio investors (FPIs) offloaded equities worth Rs. 5,294. This is the second consecutive month that FPIs have offloaded equities.
However, it is much less compared to the figure in January, where equities worth Rs. 28,851 crore were offloaded.
Banking concerns
Two American banks collapsed earlier this month
The latest entrant in the list of factors affecting India's market is the banking crisis. Two American banks, California-based Silicon Valley Bank and New York-based Signature Bank, collapsed earlier this month.
Credit Suisse, Switzerland's second-largest bank, hit historic lows on March 15. Although the bank's decision to borrow from the Swiss National Bank has averted worries of an imminent collapse, there are looming concerns.
Contagion
The market is worried about a contagion
The collapse of banks has put the market on edge, with many fearing there would be an increase in selling pressure.
Markets are worried about the health of the financial system. On top of all the listed factors, increasing interest rates and the Russia-Ukraine conflict have also put more pressure on the Indian market.