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Why is BSE Falling and Why you Should not Panic: 5 Reasons


In the last two months or so, Sensex wiped all of the gains it made between January and August 2018. Why is the Indian stock market falling? Should investors and traders stay away from the markets? Read this post to find out. 

If there is one thing that every trader or investor probably knows about the stock market is its volatility. While 2018 seemed to be like one of the best years for the Indian stock markets, it has been a wild ride in the last couple of months. On August 28, 2018, Sensex was trading close to 38,896. On October 26, 2018, it closed around 33,350 which means a fall of more than 5,500 points or more than 14%. 

The fall of more than 14% in the last couple of months has spread a lot of fear and panic among traders and investors. Let us have a look at five reasons why the stock market is falling and why one should not panic. 

1. The IL&FS Crisis

Infrastructure Leasing and Finance Service or IL&FS with a debt burden of more than INR. 90,000 crore has abundantly contributed to the recent fall of the Indian stock market. The company defaulted on debt payments which eventually resulted in a ratings downgrade. 

The crisis is expected to considerably affect the liquidity of mutual fund houses, NBFCs, and SMEs. However, the government has now created a new board for the struggling NBFC which is currently working on a roadmap for the repayments. 

2. Falling Rupee

INR has fallen almost 15% in 2018 which makes it Asia’s one of the worst-performing currencies. From INR. 63.88/USD on 1st January 2018 to INR. 73.12/USD on 26th October, it has been one of the worst years for the INR. 

One of the most important reasons for this drastic fall is the rising crude oil prices which have increased the demand for US Dollars. And it is not just India; most major currencies have fallen against the USD in the past several months. Falling rupee not only has a direct impact on the revenue of several industries but also weakens the confidence of foreign investors on the Indian economy. 

3. Global Issues

The raging trade war between US and China is also a major contributor to the fall. Both the countries have introduced tariffs on the goods they trade with each other. As two of the biggest economies in the world, the trade war has rattled businesses all over the world. 

In the wake of this trade war, the International Monetary Fund has also downgraded its global growth forecast. Apart from the Indian stock markets, the stock market of the US, China, and several other countries have met a similar fate.

4. Financial Crisis in China

China too is witnessing a lot of significant problems in the country for quite some time now. Apart from the trade war with the US and the falling Yuan, the growth rate of China has been consistently low. 
Moreover, the country also has a massive buildup of debt which could trigger a severe financial crisis. As China is one of the biggest importer and exporter of goods throughout the world, their slow growth could drag the global economy. 

5. Massive Sell-off by FIIs 

Due to the reasons mentioned above, there is a kind of panic selling of Indian shares among the FIIs (Foreign Institutional Investors). 

Between 1st October and 25th October 2018, FIIs sold shares worth more than INR. 113,700 crores on BSE and NSE while the gross purchase between the period stood at INR. 91,307 crores. This too has contributed to the already negative market sentiment. 

Conclusion

It is important to note that amid all the global cues, rising crude prices, IL&FS crisis, etc. the Indian economy is still pretty consistent in its growth. The reasons responsible for the crash are only temporary and are sure to get better with time. 

If you’ve been through with your stock selection, just keep holding your position as the signs of recovery can already be seen in the market. Rather than panicking, it is actually a great time to invest in solid companies as the shares are now available at a discounted price. 
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