Greetings friends!
(Bombay Stock index is the oldest stock exchange in India which was established in 9th July 1875. In above image you can see its performance of the last 12 months.)
Covid period came as a booster for the stock market worldwide. India was not left behind. During that period when people were inside their home, they had nothing to do. So, they started trading in cryptos and stocks. That's why during that period a vast number of new dmat accounts were opened to trade in stock markets in India. Young generation was particularly enthusiastic. They started trading in future and options as well. A few made fortune in future and options while the majority of the traders had to sustain heavy losses. According to stock regulatory body in India (SEBI), more than 95 percent people had to bear loss in these trading. On the other hand people who invested in quality stocks made good profit.
After a huge fall in stock indices in March and April 2020, stock markets didn't look behind. Their trade volume and stock prices increased by leaps and bounds. Even the low quality shares' price increased 10 to even 100 times. That was the biggest bull run in which these youngsters had seen in their lives. Bombay Stock exchange's index Sensex and National Stock Exchange index Nifty50 reached their all time high of approximately 86000 and 26000 respectively in September 2024. That was the peak point. Thereafter, things changed dramatically as you can see in the first and second images above. Foreign Institutional Investors (FII) started disinvesting from Indian market. So far the Nifty 50 is down by 13% of its peak value, while the Sensex has similarly down by 12%. These indices represent top stocks. Value of midcap and smallcap indices have fallen very badly. There has been correction of even 80% in some smallcap stocks. This is very shocking for the investors who were expecting the market to reach to the moon. This is very drastic for Indian stock market as global counterparts are performing well. European market is up, American market is also up and the Chinese market is making new highs while Indian market is going to abyss. So far during the last 12 months, Indian market has lost $4 trillions which is more than the GDP of neighbouring countries like Pakistan, Bangladesh etc.
What is going wrong with the Indian market? Is there any fundamental flaw in the Indian economy? Data indicates that there may be some. First of all there was too much pumping of money in the stock markets by the retail investors through mutual funds and directly as well. This took markets to new heights. A big bubble formed. When FII started profit booking, market started crumbling. Overvalued market turned into correction mode. When FII started taking out their money, value of Indian currency INR started declining sharply compared to USD. This further forced FII to take their money as soon as possible.
Growth projection of Indian economy has been estimated declining. So, there are not much opportunities for the companies to make profit. China's support to its industries has also siphoned money from India and to invest in China. Donald Trump's tariff war has also add fuel to the fire. But, the most important thing is the economic slowdown in India. Indian companies are not generating enough jobs. Th Government's relying on taxes and loans but the tax burden is breaking the confidence of the middle class and industries. Worst thing is the failure of the 'make in India' initiative of the PM. Indian manufacturing sector is facing problems. It depends on imports from China and then assembling. So, there is no real manufacturing being done in the country. Also, the government's non-transparent policies and not disclosure of vital stats put a suspicion in the mind of the investors. So, all these factors are making things bad for the market.
People are not much hopeful in this situation. They are afraid to invest. It will take some time to regain the confidence of the investors, even if the government takes big and bold decisions. Therefore, it seems that market may dip further before being in a stable condition.
Let's hope for the best!