Key Reasons Behind the Sensex & Nifty Fall (5.5% Drop)
The stock markets, majorly Sensex & Nifty, has seen a fall of 5%-6% in the period of last one month. Why are Indian Stock Markets (Sensex & Nifty) Falling? What are the reason behind this? Many theories are being developed regarding this. Many people are trying to link this fall with the election outcome.
Sensex & Nifty
- Sensex, which attained a top of 39,275 on 16th April,2019, has now come down till around 37,114 on 15th May,2019.
- Nifty, which went up till a high of 11,787 on 16th April,2019 , is currently being traded around 11,157 on 15th May,2019. .
- Thus, both the indices are down by close to 5.5% from last one month.
- We think that the this fall in the stock markets is not because of the elections but because of global coupling effect. Coupling effect means if there as some activities going in the global market then the corresponding activities will also happen in the Indian stock markets.
World Indices :
- Nikkei, an index of Japan, has come down by 5.6% in the last one month.
- Hang Seng, an index of Hong Kong, has come down by 6.4% in the last one month.
- Shanghai, an index of China, has come down by 11.19% in the last one month.
- European indices such as FTSE of UK, DAX of Germany, CAC 40 of France have also come down by 4% to 5% in the last one month.
- And similarly, Indian Indices, Sensex and Nifty, have also come down by 5.5%.
- There are no elections going on in any other countries, but still their stock markets are falling. Hence, elections in India cannot be the reason behind the stock markets falling in India or in ant other country for that matter.
Reason Why the Global and Indian Stock Markets are Down
1. US – China Trade War :
- In January 2018, Trump administration started taking action on the trade deficit between US and China. There was a trade deficit of $379 billion, in January 2018 as per calendar year. That is exports worth $379 billion were additionally done form China to US. At that time, Trump administration stated that the export amounts should be same from both the countries. And that is when the US – China trade war actually started.
- In July 2018, US levied an import duty of 25% on exports worth $34 billion from China. To reciprocate, China did the same thing. China too levied an import duty of 25% on exports worth $34 billion from US.
- In August 2018, US levied an import duty of 25% on exports worth $50 billion from China. China took levied similar duties as well.
- In September 2018, US and China again repeated their action of September 2018. US did not just stop there. To take some more aggressive actions, it levied import duty of 10% on exports worth $200 billion from China. At that time China took a backfoot and did not reciprocate similarly. Instead it levied 5%-10% import duty on exports worth just $60 billion from US. This was when China started to lose some ground.
All these things were definitely not good for the global markets.
- In this trade eventually only US would come out as the winner as China was the one from whose side there was trade surplus. And, China needed to understand this. After that discussions were going on regarding this trade war but no actions were being taken particularly.
- And now on 10th May 2019, US levied 25% import duty on exports of $250 billion from China. At this point, China is a little scared and they have only thought to levy import duty on exports of $110 billion. And that too China is saying that they will levy an import duty up to 25%, meaning different import duty depending upon the product.
- Thus, till now, US has levied import duty on imports worth $584 billion. And on the other hand, China stands at just $304 billion. There is a difference of $280 billion which shows the aggressiveness of US.
- Other import duties can be still be said that were less, but the import duty of 25% on exports worth $250 billion from China was a very aggressive step.
- Now, definitely discussions will be conducted and efforts will be made to reach a resolution.
2. India Specific Reasons :
- There are no India specific reason as of right now because of which the stocks markets are falling.
- But yes, if the results of Lok Sabha elections are not as per the expectation and the results are totally different and unusual, then the markets can give negative reactions at that time.
- Therefore, in conclusion US – China trade war is the reason why global markets are going down and also the Indian stock market is falling.
- In the future, the election result can have an impact, but it is certainly not the current reason behind the fall in Indian stock market.