On 30 May 2024, the Indian stock market ended in red. With Sensex falling more than 617 points from its previous day’s level, and Nifty crashing more than 200 points, the market became highly sensitive to the upcoming Lok Sabha Elections results.
However, the stock market crash was short-lived as today on 31 May 2024, both the broad market equity index of the country – Nifty 50 and BSE Sensex are trading in green. While the election is one of the primary reasons behind the volatility in the stock market for the past few days, there are other pivotal reasons as well that are moving the markets. Let’s dive into those underlying causes to understand the market better.
Reason for Stock Market Fall
- Upcoming Lok Sabha Elections Results: As stated above, the primary cause of the market volatility at present is due to the Lok Sabha election 2024 and its results, which are due on 4 June 2024. The exit polls are about to come up on Saturday, 1 June right after the final phase of voting. This can lead to significant movements in the markets. The Indian VIX Index rose significantly yesterday which indicates high volatility in the market and that is to remain for the next week as uncertainty prevails over election results. Markets seem unconvinced even after the six election phases with the type of government formation and thus it has been sharply declining for the past few market sessions. However, the government sees the markets to move up on the day of the results and further. Since the stock market and government are closely interlinked, as the business environment and policies will depend on the government that will form after the results, the investors are anxious at present.
- Middle East Turmoil: Due credit has to be given to Middle East tension for the market volatility that has been rising through this week. The global equity market was trading at a lower space with the rising tension between the Middle Eastern countries. Investors are afraid of another round of oil price volatility as fresh attacks take place in the Red Sea.
- Increasing Treasury Yields in the US: Foreign investors fly away from the Indian markets when treasury yields rise in the West. The US treasury yields are at a one-month high currently, which is dragging the domestic market down in India as FIIs are leaving. The increase in the treasury yield has been a result of the better consumer confidence data in the US along with the dovish comments of the US Fed officials. However, compared to previous months when treasury yields were higher, FII selling has come down, however, as the election results are around the corner, the uncertainty is at its peak, and thus fear of heavy profit booking by FIIs remains.
- Fading Rate Cut Hopes: As mentioned in the last point the treasury yields have gone up in the last month, and with the oil prices increasing, along with other geopolitical tensions, rate cuts by the US Fed seem to be a distant dream now. This further draws FIIs from the domestic Indian stock market and is one of the prime reasons for the Sensex fall.
- Monthly Expiry: The final reason for the fall in the market can be the upcoming monthly expiries. The rollover rate was down in the first half of the previous trading session, which also dragged the frontline equity indices down.
So, investors need to be alert as the market is to remain volatile due to the upcoming Lok Sabha election results next week. Plan your investments according to the market sentiments and let the market settle down a bit to have a clear view of the near future.
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.