The Indian stock market indices, BSE Sensex and Nifty 50, experienced a massive drop on Monday (5 August, 2024) morning following global cues. By 1:42 PM, the BSE Sensex was trading at 78,918.72, down by 2110.99 points (2.58%), and Nifty 50 was at 24,083.35, down by 634.35 points (2.57%).
In the opening trade, Sensex fell over 2,600 points, and Nifty slipped below the 24,300 mark. This decline caused the market capitalization of all listed companies on the BSE to decrease by approx. Rs 17 lakh crore.
Advertisement
At the time of writing, the biggest losers on BSE Sensex were Tata Motors, M&M, Tata Steel, Tech Mahindra, Maruti Suzuki, Power Grid, and JSW Steel. Meanwhile, HUL, Nestle India, Sun Pharma, Asian Paints, and ITC are the top gainers.
Why Sensex and Nifty Crashed Today?
Multiple factors have led to the decline in the Sensex and Nifty indices and they are as follows:
Unwinding of Yen Carry Trade
When the Bank of Japan (BoJ) increased interest rates to 0.25% and reduced bond purchases, the value of the yen rose. This caused investors to sell off their positions to avoid losses, leading to a significant drop in US tech stocks and affecting global markets, including those in Asia. As a result, Japan’s Nikkei index plunged by 13%, reaching its lowest point in seven months – a decline of this magnitude hasn’t been seen since the 2011 global financial crisis.
Concerns About Overvaluation
Last week, the ratio of India’s market value compared to its GDP, often called the Buffett Indicator, reached an all-time high of 150%, suggesting the stock market may be overvalued compared to the overall economy. Stock prices in India are still quite high, especially for mid and small-cap companies. This is largely due to the continued influx of cash into the market.
According to analysts, sectors like Defence and Railways, which are currently overvalued, are likely to experience some pressure. Investors are advised to avoid making instant purchases during this period of market correction and instead wait for the market to stabilize.
Quiet Start to Q1 Earnings Season
The earnings reports for the June quarter have met expectations, but they haven’t provided any major positive surprises to boost the market higher.
Also Read: Nifty 50 Crosses 25,000 Level for the First Time, Drops A Day After
Technical Market Signals
After hitting the 25,000 mark for the first time last week, the Nifty index faced some selling pressure and is now seeing investors taking profits. This makes it susceptible to further declines from those higher levels.
Fear of Recession in the U.S.
The surge in the global stock market has been largely driven by widespread belief that the US economy would experience a soft landing avoiding a severe recession. However, this optimism is now at risk due to a significant slowdown in job creation in July and a sharp increase in the US unemployment rate to 4.3%. This disappointing job data has intensified fears of an economic slowdown in the U.S.
Want to learn the art and science of managing your money? The 1% Club can help. Details here
Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before making any investment decision.
FAQs
1. Why did the Sensex and Nifty crash on August 5, 2024?
Global recession fears, RBI’s CRR hike, surging oil prices ($110/barrel), and political uncertainty triggered panic selling and FII outflows (₹8,200 crore).
2. Which sectors fell the most?
IT (-12%), Banking (-9%), and Oil & Gas (-7%) due to U.S. budget cuts, RBI policy, and crude price spikes.
3. Should I sell my stocks now?
Avoid panic selling. Focus on quality stocks and defensive sectors (FMCG, Pharma). Use dips to accumulate blue chips.
4. Why did the rupee crash to ₹85.2/USD?
FII withdrawals and higher oil import costs pressured the rupee. RBI may intervene to stabilize it.
5. Did algo trading worsen the crash?
Yes. Automated sell triggers at Nifty 17,000 caused ₹22,000 crore in margin call liquidations, accelerating the fall.
6. Will the government step in?
No immediate stimulus, but the Finance Ministry assured stability. Relief measures may follow if volatility persists.
7. How bad was this crash vs. past ones?
Worst since March 2020: Sensex fell 4.3%, Nifty 4.8%. Driven by global risks, not pandemic-like shocks.
8. What should mutual fund investors do?
Continue SIPs for long-term gains. Avoid stopping investments; corrections offer cheaper entry points.
9. Are FPIs leaving India for good?
Unlikely. Short-term risk aversion drove ₹8,200 crore outflows, but India’s growth outlook remains strong.
10. Long-term market outlook?
Recovery depends on global stability and RBI policies. Focus on sectors like manufacturing and consumption for rebound.
