In this article, we will discuss
- Sensex and its Importance in Indian Stock Market
- Sensex Performance from 2021 to 2023
- Reasons for Sensex Downfall
Sensex and its Importance in Indian Stock MarketThe Sensex, also known as the S&P BSE Sensex, is an index of the Indian Bombay Stock Exchange (BSE). It consists of the top 30 BSE-listed companies based on market capitalization and other factors. The Sensex is widely used by investors, traders, and analysts to track the performance of the Indian stock market and make investment decisions. It is regarded as the benchmark index for the Indian stock market. It is a key indicator of the health of the Indian economy. Domestic and foreign investors closely monitor it. The Sensex updates every second and provides real-time data on the Indian stock market's performance. The Sensex significantly impacts investor sentiment and investment decisions on the Indian stock exchange.
Sensex Performance from 2021 to 2023The Sensex (BSE30) is a major stock market index that tracks the performance of 30 major Bombay Stock Exchange-listed companies. The index is based on the market capitalization of free-floating stocks and reflects the overall health of the Indian economy. The Sensex began in 2021 at approximately 47,869 points; on October 18, 2021, it reached an all-time high of 63,583. Strong corporate earnings, economic recovery, vaccine rollout, foreign inflows, and supportive monetary policy contributed to the index's 33% increase in 2021. However, the Sensex faced headwinds in the fourth quarter of 2021 due to rising inflation, rate hike expectations, Omicron variant concerns, and global volatility. The index ended 2021 at approximately 59,708 points, down roughly 6% from its all-time high. In the first two months of 2022, the Sensex continued to decline as investors shifted their attention to value stocks and emerging markets in response to tightening liquidity conditions and geopolitical tensions. On March 22, 2022, the index fell below the psychological level of 60,000 points and reached a low of 58,063. Numerous variables, including the Covid-19 situation, fiscal and monetary policies, corporate earnings growth, oil prices, and currency fluctuations, could influence the performance of the Sensex in 2022-23. Some analysts anticipate that the Sensex will rebound in the second half of 2023 and reach new highs by December 2023. In contrast, others warn that a significant rotation in Asia could harm Indian markets. The consensus estimate for the Sensex in December 2023 is approximately 71,600 points, indicating a potential increase of approximately 23% from its current level.
Reasons for Sensex DownfallIt's time to answer the question, why is the Sensex falling? There could be various reasons for the fall in Sensex, such as global economic conditions, domestic political instability, changes in government policies, or even investor sentiment. Let’s explore all of them.
1. Global Economic ConcernsThe global economy plays a significant role in shaping market sentiments. Whenever there are concerns around global economic growth or international trade, it can impact Sensex's performance. Investors turn cautious and may start selling stocks, leading to a drop in the Sensex.
2. Domestic Economic FactorsSometimes, the Sensex downfall can be attributed to domestic economic factors, like lower GDP growth, high inflation rates, or fiscal deficit. These factors can create a negative outlook for the country's economy and potentially result in lower corporate earnings, leading to a decrease in Sensex.
3. Political InstabilityAnother factor that can contribute to the Sensex downfall is the political situation in the country. Political instability or uncertainty can lead to market volatility, as investors are unsure of the government's policy direction and impact on economic growth.
4. Corporate EarningsCompanies listed on the Sensex are some of India's largest and most influential. If these companies report disappointing quarterly earnings, it can cause a negative sentiment in the market and lead to a decline in the Sensex.
5. Interest Rate ChangesCentral banks, such as the Reserve Bank of India (RBI), often adjust interest rates to control inflation and manage economic growth. When interest rates rise, the cost of borrowing increases for companies, which can negatively impact their profitability and stock prices, leading to a drop in the Sensex.
6. Foreign Institutional Investors (FIIs)FIIs play a crucial role in the Indian stock market. Their buying and selling decisions can significantly impact Sensex. If FIIs start selling stocks or reducing their investments in India for various reasons, it can lead to a decline in the Sensex.
7. Geopolitical TensionsGeopolitical events, such as wars, conflicts, or trade disputes, can also impact the Sensex. These events can create uncertainty in the global markets and affect the flow of investments, causing the Sensex to fall.
9. Currency FluctuationsThe strength of the Indian Rupee (INR) compared to other currencies can also affect the Sensex. A weaker INR can result in higher import costs and inflation, leading to negative market sentiment and a subsequent drop in the Sensex.
10. Sector-specific IssuesSometimes, the Sensex decline can be attributed to concerns around specific sectors or industries, such as banking, IT, or telecom. Any negative news or developments in these sectors can lead to a fall in their respective stock prices and impact the overall Sensex.
11. Market SentimentFinally, market sentiment is essential in determining Sensex's performance. Fear, greed, and other emotions can drive stock prices up or down, regardless of the underlying fundamentals. If the overall market sentiment is negative, it can result in a Sensex downfall.
Recent Factors of Sensex Falling
- Russia's suspension of a key nuclear arms control treaty and its subsequent threat to resume nuclear tests have also contributed to rising geopolitical tensions. As a result, market volatility and uncertainty have increased, and some investors may feel less comfortable taking risks.
- The Asian markets were reacting to Wall Street's trends. The Dow Jones fell 4.4%, the S&P 500 fell 4.5%, and the Nasdaq lost 4.7% in the past week. The Nikkei 225 index in Japan closed down 1.1%, while the ASX 200 index in Australia closed down 0.5%. UK's FTSE 100 dropped 2.4%, hitting a new two-month low.
- As for the third factor, India's weak macroeconomic data and higher-level profit-taking are to blame. In October of 2021, the Sensex hit a record high of 63,583 points, a gain of about 33% from the beginning of the year. However, some investors have begun taking profits and selling overvalued stocks in anticipation of a slowdown in earnings growth and economic recovery due to rising inflation, Omicron variant concerns, and supply chain disruptions.
- The American firm Hindenburg Research report accusing the Adani Group of fraud and money laundering is the fourth cause of the stock market crash. Investors are freaking out because they have a lot of money in banks and other companies with much exposure to the Adani Group. PSU bank stocks, performing well in recent months, were among the worst hit, falling as much as 7%.
- Silicon Valley Bank (SVB) and Signature Bank's collapse hit the Indian stock market as it was recovering from the Adani crisis. The SVB crisis affects global equity markets, and investors have lost Rs 7.3 lakh crore and the Sensex 2,110 points in the last three trading sessions.
- Union Budget and Federal Reserve meetings are expected to affect the market direction significantly. Foreshadowing how fiscal and monetary policies may influence growth, inflation, and liquidity conditions, investors closely monitor these occurrences. While some forecasters anticipate a resurgence in the second half of 2022 and fresh highs by December 2023, others warn that a significant rotation in Asia could harm Indian markets.