Explained: Why have the Indian markets crashed?

After an extended weekend, the Indian stock market opened on Monday with a rude shock to the traders as the benchmark Sensex fell sharply by 1,291.93 points to 57,047 in the early trading hours.

Investors' wealth tumbled over Rs 3.39 lakh crore in morning trade as equity markets went into a tailspin.

Tracking the weak trend in equities, the market capitalisation of BSE-listed firms tumbled ₹ 3,39,088.04 crore to ₹ 2,68,63,975.53 crore.

It wasn’t just Sensex that fell by more than 2.2 per cent, other key Asian markets, including Nikkei in Japan and Shanghai Composite in China too fell by 1.9 and 1.3 per cent, respectively.

Various global and local developments can be cited behind the crash of the Indian markets. Rising global inflation, impact of the ongoing Russia-Ukraine war, expectation of a faster pace of rate hike by the US Federal Reserve, a weak Chinese economy and the rising COVID-19 cases are few to be named.

Higher oil prices due to Russia-Ukraine war

Earlier this month, European Union countries’ approval of a ban on Russian coal imports, which will take effect from August, will further add to the rising energy insecurity in the region. There are also reports of some sanctions on crude oil in the next set of EU sanctions, as per a report by the Indian Express.

"In the near-term, headwinds are getting stronger for the market. Globally, sentiments are negative with the dollar index above 100, 10-year yield above 2.8 per cent and global economy expected to weaken if the Ukraine war prolongs.

As concerns grew about restricted oil supply, in the light of the deepening Ukraine crisis, oil prices soared on Monday.

According to Moneycontrol, Brent futures were up $1.50, or 1.3 percent, at $113.20 a barrel at 0030 GMT, and US West Texas Intermediate futures rose 98 cents, or 0.9 percent, to $107.93 a barrel.
The International Energy Agency had warned that roughly 3 million barrels per day (bpd) of Russian oil could be shut in from May onwards due to sanctions, or buyers voluntarily shunning Russian cargoes.

China GDP

According to Moneycontrol, China has reported a gross domestic product growth rate of 4.8 percent for the first quarter of 2022, as against 4 percent in the fourth quarter. The National Bureau of Statistics too warned of “significant difficulties and challenges” ahead, reported AFP.

With the extent of COVID-related disruptions in March, China’s growth numbers have come in higher than what was anticipated. The growth figures may not fully capture the shockwaves of the COVID lockdowns across several cities which also were economic centres, including Shanghai.

The rising COVID-19 cases in China and the slower than expected rate of growth of the Chinese economy has also impacted the market sentiment.

Inflation in India

Economists are expecting as many as six repo rate hikes in the coming Monetary Policy Committee meetings that will start in June. Economists from Citi, HSBC and Kotak have also revised their inflation forecast upward for the year.

The CNBC-TV18 economists’ poll had pegged consumer inflation at 6.28 per cent in March, however, it has come at a surprisingly high 6.95 per cent.

The RBI suggested to shift focus from reviving growth to mitigating risks posed by inflation in its recent monetary policy statement.

“In the sequence of priorities, we have now put inflation before growth. Time is appropriate to prioritise inflation ahead of growth,” RBI Governor Shaktikanta Das had said after unveiling the bi-monthly policy review, as quoted by the Indian Express.

With inputs from agencies

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