Understanding the Forces Behind a Stock Market Crash: Insights from the 2024 Indian Stock Market
On June 4th, 2024, the Indian stock market experienced a significant downturn, dropping by 5500 points. This event was particularly disappointing for traders and investors who had placed bets based on pre-election exit polls suggesting a strong showing for the Bharatiya Janata Party (BJP) and the National Democratic Alliance (NDA). However, when the actual election results were announced, the NDA won 290 seats and BJP 240 seats, far from the initially projected 370 seats for NDA and BJP combined. This unexpected result led to a stock market crash. Despite this, the market began to recover as Shri Narendra Modi took the oath as Prime Minister for his third term.
Factors Contributing to Stock Market Crashes
A stock market crash can be triggered by a variety of factors. Common causes include economic downturns, geopolitical tensions, changes in monetary policy, corporate scandals, and unexpected events such as natural disasters or pandemics. Often, it is a combination of these factors rather than a single cause that leads to a market crash.
Hindenburg Report and Adani Group's Debt Levels
Recent events, such as the Hindenburg report on the Adani Group, have played a significant role in the market's downturn. The report has labeled Adani's stocks as overvalued. This may result in a further decline in the stock prices, possibly for a few more days. Additionally, the high debt levels of Adani's groups have led to a drop in the banking sector, contributing to the overall market fall.
It is noteworthy that while markets may experience fluctuations, they are not necessarily crashing. The current situation might be more accurately described as volatility, similar to what we witnessed in the first half of 2022. The market is currently in a state of indecision, with traders and investors hesitating between going up, going down, or staying the same.
Recent Market Indicators
Examining the past five months of stock market expiry data reveals a clear pattern of volatility and fluctuation. The market has shown no clear direction, with expiry points ranging between 17600 and 17100. Specifically, the expiry points for the months of September, October, November, December, and January were 17600, 17850, 17500, 17203, and 17110, respectively. This data suggests a lack of clear trend and hints that similar volatility might continue for a while.
While the market may not be crashing, it is certainly experiencing significant fluctuations. Investors should remain vigilant and informed, monitoring both local and global market trends and economic indicators. As for the future, some predict that the next upward move will come after the current period of indecision.