Will the stock market crash again in India?

The Indian stock market has been going down amidst the second wave of pandemic that hit the country. The country has recorded over 2.5 lakhs of coronavirus cases and it is increasing daily. This has brought a lot of uncertainties and people are panicking and living in fear. It has also made the stock market volatile and nervous. 

The Indian stock market has rallied a lot since the last market crash. But this time it has failed to recover despite global positive clues. The steady decline in recovery rates is worrisome but it shouldn’t have a great impact on the market because of the positive global outlook.

The complete lockdown and fall in the market crash has got many people worried that last year’s scenario is about to happen. Shares of many companies in various sectors have been trading in the red in the Indian stock market as it opens today. Several reasons can cause the Indian market to cash and they include:

Increase in coronavirus cases

India is in the middle of a great crisis. The country is experiencing a second wave of coronavirus with deadlier forces. There is an increase in active cases and the daily caseload is rising faster than that of last year. India has reported more than 2.5 lakhs cases of coronavirus with over 1,000 deaths.  Which makes it a total of 15 million cases reported in the country since the beginning of the pandemic. 

This has spooked many investors and they are plagued with worries about its impact on the Indian economy and earning growth. The government has also implemented total lockdown in states with high cases to curb the spread of the deadly virus. This is having a negative impact on business across many sectors in India.

A rise in market volatility 

The Indian domestic market is experiencing a rise in volatility due to the current coronavirus situation. The market is turning more volatile as the country’s coronavirus cases continue to rise for the past few days. According to reports from experts, the volatility of the market could further increase if the situation in India continues to worsen. 

This can lead to a huge stock market correction. The gauge for measuring market volatility has shown up to 9.7%. This shows that the stock market is falling due to a sharp increase in coronavirus cases and its negative impact on the economy. 

Downgrades of India Gross Domestic Product 

The new wave of coronavirus in India has not only overwhelmed the health system but also posed risk to the country’s economic recovery. This has made many leading brokerages in the country downgrade the GDP growth projections for the current fiscal year. 

The GDP has been downgraded to as low as 10% which is now affecting the stock market sentiments. Nomura has downgraded the GDP growth projection for the fiscal year which ends by March 2022 from 12.5 per cent to 13.5 percent. While JP Morgan now projects the GDP growth to 11perceng from 13 per cent. 

Coronavirus Restrictions

The Covid-19 outbreak necessitated back-to-back lockdowns and local shutdowns. Delhi has announced partial lockdown while Maharashtra is implementing a strict curfew. Other states have also made their restrictions stricter than ever. 

The lack of business activities is putting pressure on millions of businesses in the country and hurting the economy. This development is increasing investors’ fear and they are scared of making any new investment during these coronavirus restrictions. 

Many small businesses are suffering due to restrictions and this could affect many major sectors such as the banking and financial sector in the country. The state-owned banks are greatly affected and they are experiencing their third session of losses since the beginning of the pandemic. 

Small businesses are unable to meet up their repayment agreements. Organisations are not generating sufficient profit from their business due to coronavirus restrictions. Almost every industry has seen a fall in its sales and revenue. And the banking sector seems to be experiencing the biggest drop in the stock market today. 

Foreign Portfolio Investors Overflow

The foreign portfolio investors are also worried about the rise of coronavirus cases in India in the fall in the country’s economy. Many have pulled out a net of over ₹4,000 crores from the stock market from April to date. The depository data has also shown that overseas investors have removed more than ₹4,000 crores from equity. But has invested ₹28,000 crores in the debt segment. 

The bottom line
The stockbrokers in India are now lowering their GDP forecast for India and projecting a fall in the stock market. Many investors out of fear are pulling back from investing in the stock market. Can this be a welcome mat for another stock market crash again in India?

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