Stock Market, Reasons Behind Recent Fall

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The Indian stock market has recently witnessed significant volatility, reflected in the surge of the India VIX index by nearly 35% in May. Despite a slight rise in April and a notable fall in March, the market remains unpredictable. On May 8, the Sensex and Nifty 50 experienced marginal declines, while mid and small-cap indices showed some resilience. Currently, market sentiment remains uncertain, with the India VIX reaching 17.4 levels.

Reasons Behind Recent Fall in Stock Market

The recent fall in the Indian stock market can be attributed to several factors:

Election Uncertainty: The tighter-than-expected Lok Sabha race has injected uncertainty into the market. Concerns about the potential outcome of the election and its impact on government policies have led to investor caution.
Government Policy Concerns: There are fears that a third term for the current government might not be as decisive as initially anticipated. This has raised concerns about the continuity and effectiveness of pro-business and pro-industrial policies, which have been key drivers of market growth.
Profit Booking: Ahead of the election results, investors are engaging in profit booking, taking gains off the table to reduce risk exposure in the face of uncertainty.
Foreign Investor Selling: Foreign institutional investors (FIIs) have been offloading equities, adding to the selling pressure in the market. This could be due to global factors, domestic concerns, or portfolio rebalancing.
Lower Voter Turnout: A dip in voter turnout in some regions has raised questions about potential electoral outcomes, adding to market jitters.
Global Cues: While there may not be major negative global cues, global market conditions can influence investor sentiment in the Indian market.
Technical Factors: India VIX, which reflects market volatility and sentiment, has hit a fresh 52-week high, indicating heightened uncertainty among traders and investors.
Corporate Earnings: Concerns about corporate earnings performance and future forecasts may also be contributing to the market’s downward trend.
Valuation Concerns: Some analysts believe that the market may have been trading at relatively high valuations, leading to a correction as investors reassess risk-return dynamics.

About Stock Market

The stock market is a network of exchanges where investors and traders buy and sell shares of companies and other financial instruments. These trades determine the price of stocks, which reflects the company’s perceived value and market conditions.

The stock market serves two important purposes:

Capital: Companies can raise money by selling ownership stakes, called shares of stock, to investors.
Investment income: Investors benefit as their shares become more valuable as companies use the money to grow and expand their businesses.

The stock market includes stock exchanges and over-the-counter (OTC) marketplaces. In an OTC marketplace, investors trade securities directly with each other instead of through an exchange.

The terms “share market” and “stock market” are often used interchangeably. Stock markets can be classified into two parts: primary markets and secondary markets. An example of a primary market is an Initial Public Offering (IPO), when a company registers itself for the first time at the stock exchange to raise funds through shares.

How Does Stock Market Work?

The stock market is a collection of exchanges where investors buy and sell shares of companies and other securities. Companies issue shares to raise money, and investors can buy and sell shares to make money. The stock market is a dynamic platform that’s influenced by the interaction of many participants and has a global economic impact.

Here’s how the stock market works:

Investors open a demat or brokerage account to enter the stock market.
Investors contact a broker or exchange to buy or sell securities.
The broker passes the buy order to the stock exchange, which searches for a sell order for the same share.
Once a buyer and seller are found, they agree on a price to finalize the transaction.
The stock exchange confirms the order and communicates this to the broker, who then passes the message on to the investor.

The price of a share is based on supply and demand. For example, if there’s a lot of demand for a stock, investors will buy shares faster than sellers want to sell them, which can drive the price up.

Types of Stock Market in India

The four types of stock markets are:

Primary market: For new securities
Secondary market: For existing securities
Equity market: For stocks
Derivatives market: For financial contracts based on underlying assets

Some stock exchanges in India include:

Stock Exchange	Description
BSE	Established in 1875, one of India’s oldest and largest stock exchanges. Responsible for listing, delisting, and overseeing trading activities.
NSE	India’s leading stock exchange in terms of market capitalization. Operates electronically and fully automated.
Calcutta Stock Exchange	Established in 1908, it is the second-largest stock exchange in South Asia.
India International Exchange	India’s first international stock exchange, inaugurated in January 2017. A subsidiary of BSE, located at IFSC, GIFT City, Gujarat.
NSE IFSC	A subsidiary of the National Stock Exchange, established to expand India’s financial market and increase capital.

Stock Market FAQs

What caused the stock market crash?

There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.

Can stocks go to zero?

Stock prices can fall all the way down to zero. That means the stock loses all of its value and a shareholder's earnings are typically worthless. In this case, the investor loses what they invested in the stock.

Should you buy stocks during a crash?

By continuing to buy shares when the market is down, you may lower the overall price you pay per share and position yourself for growth when stocks inevitably recover. But remember: This recovery isn't instant. It may take months or even years.