Indian stock market – From US recession fears to tensions in the Middle East, here’s why the markets are falling

• The Indian stock market reported a huge decline on Monday, with Sensex and Nifty opening in red.
• US recession fears and tensions in the Middle East are among the factors for the decline.
• Here are some of the reasons for the decline in the Indian stock market.

The Indian stock market reported a decline on Monday as benchmark indices Sensex and Nifty opened in red. While Sensex opened at 78,588, Nifty opened at 24,302 and further declined to below 24,000 levels amid heavy selling.

Around ₹17 lakh crore of investor wealth was wiped out on Monday as the market cap of companies listed on BSE declined to ₹440.2 lakh crore.

Sensex and Nifty50 report bigger decline than budget day

The fall on Monday has pushed the Sensex below its budget-day low of 79,224. The Nifty50 also slipped below its 20-DMA and recorded the biggest single-day decline in over two months.

At 11:20 am, the BSE Sensex was 3.20% down at 78,392, while the Nifty 50 was 3.15% down at 23,940.

The top losers include Tata Motors, ONGC, Hindalco, Tata Steel and others.

Here’s why the Indian stock markets declined

While there are a lot of reasons for the decline in the Indian stock market on Monday, here are some of the biggest factors that have impacted the markets:

Recession fears

One of the triggers for the decline on Monday was the fear of recessions in the US, which increased after data revealed that the job growth in the US in July slowed more than expected. The US unemployment rate jumped to a three-year high at 4.3%, up from 4.1% in June, marking the fourth consecutive month of increase.

As per data from the Labor Department, the nonfarm payrolls increased by just 114,000 jobs in July, falling short of the 175,000 expected. This is also below the 200,000 jobs needed to keep up with the population growth.

The fear of a looming recession has decreased the appetite of investors, resulting in a withdrawal. Economists at Goldman Sachs have increased the probability of a recession in the US in the next 12 months to 25%.

Experts have predicted a rate cut of up to 100 bps by the US Fed this year.

Increased tensions in the Middle East

The tensions in the Middle East have heightened after Israel reportedly killed Hamas political chief Ismail Haniyeh while he was in Tehran to attend the inauguration of newly elected Iranian President Masoud Pezeshkian.

Iran and Hezbollah are expected to attack Iran this week. The Permanent Mission of Iran to the United Nations has warned that Hezbollah may target "broader and deeper" civilian as well as military targets inside Israel.

The Benjamin Netanyahu-led government in Israel is reportedly planning on conducting a pre-emptive strike on Iran to prevent an attack on its soil.

The increased tensions could result in increased fuel prices, resulting in inflation.

Overvaluation

The Indian stock market is currently overvalued, as per experts. A correction has been expected for some time now and it has finally arrived. India’s GDP market capitalization to GDP ratio, well-known as the Buffett Indicator reached 150% last week.

The high valuations in the stock market are driven by liquidity flows, especially in the mid and small-cap segments. Segments such as defense and railways have been overvalued for some time now.

Underwhelming Q1 results

Indian companies have reported their Q1 numbers and the year has been off to a bad start, with several companies reporting underwhelming numbers. India Inc’s June results have failed to boost the market sentiment.

Apart from this, technical factors also played a role in the decline on Monday.

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