Sensex Crash: 20 Lakh Crore Investor Wealth Wiped Off – Know the main reasons and effects
Recently, the Indian stock market saw a big fall, which shocked the investors. This huge Sensex decline has resulted in investors losing wealth worth Rs 20 lakh crore in a blink. Through this note, we shall be discussing in detail the major reasons behind this important event and its impact.
Major causes for the fall in Sensex
1. Global economic uncertainty
And, in India, the maturing uncertainty in this global economic environment has created an impression of a large number of effects in the Indian stock market. The US-China trade war, Brexit in Europe, and an oscillating oil price in the Middle East, in fact, have raised fear in the mind of the investors. These global happenings are moving investors away from the stock market in search of safe investments.
2. Turmoil in the domestic economy
Of them, many challenges have also emerged in India’s domestic economy. Reduced GDP growth rate, swelling unemployment, and economic crisis in rural areas have weakened confidence among investors. Besides, the enhanced NPA (non-performing assets) of the banks and the issues with small and medium enterprises (MSME) have added uncertainty to the minds of investors.
FPIs have withdrawn a considerable amount from the market. Global uncertainties and delayed pace in the Indian economy have instigated foreign investors to use safer places to put their money. This flow of withdrawal has also impacted the Indian stock market negatively.
3. Political Instability
This is another grave cause that has resulted in a fall in the stock market. Elections in different states and investors’ lack of trust in policies of the government are fueling a situation of uncertainty in the market. Under such conditions, investors look for a stable policy environment and, right at this moment, they are not being provided with that.
Effects of Sensex Fall
1. Loss of investor’s wealth
With this fall in Sensex, investors have lost the most.. Their wealth worth Rs 20 lakh crore was lost in one stroke. This has had a deep impact on both small and large investors. For many investors, this is a loss of their lifelong capital.
2. Volatility in the market
This fall has further added to the volatility in the market. Now, investors are becoming more and more cautious and thinking several times before making new investments. This may result in the absence of liquidity in the market and a decline in the trend of long-term investment.
3. Pressure on companies
Fall in the stock market has also been directly affected the companies. The market capitalization of those companies has decreased, as a result of which such companies are not able to go for a fresh investment and hence cannot implement their expansion plans. This can also harm or undermine the growth of companies.
4. Impact on the economy
This, in turn, negatively affects the general economy. This loss in the investors’ wealth reduces their spending ability, resulting to a decrease in the demand for goods and services. In addition, the decrease in employment from companies scaling down expansion plans is also contributory to this end.
Way forward
1. Remedial measures
Steps need to be taken by the government and the Reserve Bank of India (RBI) to correct this situation. Where the government is supposed to expedite economic reforms and take concrete measures to re-instill investor confidence, the RBI has to move into a ‘syncopated’ approach for its monetary policy and try to infuse liquidity into the market.
2. Role of investors
The time also calls for patience and wisdom on the part of investors. The market would undergo ups and downs, so instead of panicking, invest wisely. The long-term investors should revise their portfolio and then take steps towards diversification.
3. Global economic environment
A positive influence of these may also be seen on the Indian market. But the onus also lies with the investors to keep an eye on the global developments and their potential impact. Improvement in global trade, stability in oil prices, and reduction in geopolitical tension may impact the Indian market.
It will create the hardest time of life for people when this kind of drastic fall takes place in the Sensex, though this is very common in the stock market: highs and lows. But it is always said that the stock market moves to and fro, making this a learning opportunity for investors. With the combined efforts of the government, the RBI, and the investors, we can get out of this situation and take the Indian economy back on track.
This event also showed how serious are global and domestic factors; investors should keenly follow them. With correctives in place and implementation of the right investment strategy, we can bridge this difficult time and move on to a stable and prosperous market.
Read more about related article, just click here
