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What Caused the Stock Market Crash and What Should Investors Do?



Amid geopolitical tensions in Europe and the Middle East, benchmark indexes fell for the fourth straight day. Foreign investors have also become pessimistic, weighing on market confidence. Except for the FMCG index, most sectoral indices closed in the negative ahead of Reliance Industries' huge results day today, which helped indexes recoup losses for the day in late afternoon trade.


Blood Bath In Dalal Street


The Sensex and Nifty50 both crashed for a series of days due to negative global indications.

  • Further, the stock market saw substantial selling pressure in the past days, with Sensex and Nifty declining by around 6.7% from January 17 to January 28.

  • Interestingly, the market rose by 1.40% on January 31 2020, showing a recovery mode.

Market All-Time High

  • On October 19, 2021, BSE Sensex surged, recording a fresh all-time high of 62,156, whereas Nifty 50 recorded an all-time high of 18,604 at Dalal street. This rise was due to the FIIs and DIIs investing in the Indian Stock Market aggressively.

  • Investors were bullish even after the rising number of COVID cases across the globe.

Reason For The Crash


There are many reasons because of which the market tanked consecutively over a series of days:

  • One of the primary reasons is that US Federal Reserve Chair hinted that interest rates might be raised in March due to rising inflationary pressures. The increase in interest rate will lead to an increase in the interest rates of debt products, leading to the transfer of funds from equity to debt. This news of the US federal reserve frightened the investors and made them decide to sell off the risky stocks.

  • Also, with the increasing number of Omicron cases in January in India, investors had a short time panic in the market compared to the rising COVID cases of March 2020.

  • There has been a trend in the Indian Stock market that the market tends to slip ahead of the budget session. It usually happens 10-15 days before the budget session.

  • Oil prices touched $90 a barrel for the first time in seven years, and the political tensions between Russia and Ukraine fuelled fears of more disruption in the falling market.

  • The FIIs are the major sellers in the market due to the depreciation in the rupee value, which leads to the lower return to the foreign investors.

Time To Sell Off Investments Or Opportunity To Buy Quality Stocks?

  • No need to panic; the market will recover soon.

  • All the investors who invested in someone's recommendation, news, or any other sources and not based on research have started panicking and are selling off their investments from the market.

  • The rational investors have already started researching the quality stocks they will invest in, taking full advantage of the fall in the market. Well researched investors are ready to invest at lower levels.

  • These are the times when a long-term investor invests their money which gives higher returns after 10-15 years.

Currently, the market is all set to bounce back as the reasons for the dip in the market were short term. The Omicron wave reaching its peak is another positive signal for the market to retrieve. The budget, unveiled on February 1, is likely to include measures to help the economy recover from the pandemic's effects. This will lead to a much better rise in the market.


References:

  1. News18

  2. Indian Express

  3. India Today

  4. India

  5. Economic Times

  6. Reuters



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