There has been turmoil of sorts in the Indian stock market in the recent months. On 4th of February, investors lost a mammoth Rs 1.2 trillion. We have tried to capture the reasons behind the convulsion in the points listed below.
Inflation: In January, inflation touched the dreaded double digit mark. The food inflation reached almost 14-15%. Investors were forced to pull out their money under such circumstances. Sensing this risk in Indian stock market, even FIIs started selling their holdings.
Increment in Interest rate: In February RBI increased BPLR (Benchmark Prime Lending Rate) by 50 basis points or 0.5%. As a result of this monetary policy by RBI, the sentiment among the investors turned negative which directly got reflected in the SENSEX.
Egyptian Crisis: India is rapidly becoming an important player in the global economy. So, the turmoil in Egyptian market hit the global economy as well as the Indian stock market. Restoration of stability in Egypt, as expected, led to a positive bearing on the SENSEX as well.
Financial Budget: The Financial Budget was released by honorable finance minister, Mr. Pranab Mukherjee. There have been few issues discussed in recent budget. FII investment in corporate bonds will be raised to USD 40 billion. This helped attract world attention once again. Individual income tax exempt slab has been increased from ₨1.6 lacs to ₨1.8 lacs. As a result, a group of people will be able to save more and will be attracted to the high risk high return stock market. The SENSEX is expected to be positively affected owing to these incentives.
Japan Crisis: The recent tsunami and earthquake made Japan’s condition worst since WWII. As Japan is one of the main members of the global economy, this economic as well as social crisis in Japan has badly affected the world economy. Some companies like Toyota and Honda have been at receiving side.
Rise of SENSEX: But again, the downturn of SENSEX has been to a limited extent. The main reason behind this is the uncertainty of the Indian market. After downfall some people assumed a rise after this fall. So they started investing again. This resulted in sudden rise in market after mid February.
We hoped for a recovery after the budget. The Egyptian scenario showed some positive signs. Now, the over looming Japan crisis is shaping a slight negative trend. But the expectations are that the SENSEX will regain its pace and we will see the bull raging again.
By – Arun Marik (pgp01014.iimrohtak@iiml.ac.in)
Abhishek Verma (pgp01006.iimrohtak@iiml.ac.in)
