What’s behind the stock market sell-off?

What’s behind the stock market sell-off?

Sensex, Nifty down over 6% in the last one week! Investors lose over 11 Lakh crore! Click to know more!

The stock market has been volatile in the last one week, with the benchmark indices falling by over 6% in the last one week on the back of negative domestic and global factors. Here are a few factors that have weighed on investor sentiment in the recent past, leading to viscous sell-off around the globe, as well as in India. 

Concerns over falling GDP growth

India’s economy contracted by 23.9% in Q1FY21, and the outlook for FY21 remains very spooky, with global agency Fitch predicting a 10.5% contraction for the current fiscal. The global economy too is expected to contract by 4.4% given disruptions to businesses due to the lockdowns. 

FII outflows

“Foreign investors, who had been net buyers in Indian equities in the last 4 months, have sold ₹2,350 crore in September so far.” This has also put pressure on the Indian rupee, which has depreciated to one-month low against the US Dollar. 

Volatility due to Global cues

Upcoming Election in the US 

U.S. markets remain volatile, with the Congress focused on the elections, and President Trump not committing to a peaceful transfer of power to Democrats in the upcoming November 3rd election, in case of a Republican loss. This all led to NASDAQ remains in red by -7% for the month and -3% in the last one week 

Fiscal Stimulus

While the US economy had been thriving on fiscal stimulus during the lockdown, now that the economy shows signs of recovery there seems to be a lack of support from congress overlooking Fed’s demand for further fiscal stimulus. Hence a V-shaped recovery looks a bit distant as of now.

Fresh lockdowns in Europe

“To control the rising cases of Covid-19, governments across Europe and the UK are mulling fresh lockdowns. This has fueled fears of further disruption to businesses in the region, leading investors to sell off their equities.” The European market has declined by over 3.5% in the last one week. Investors in Europe are shunning riskier assets and fleeing to the safety provided by the US dollar, leading to a rally in the greenback ($).

INDmoney recommendation

Our proprietary VGQM model continues to have a ‘Neutral’ rating on the Nifty. We advise the following:

• Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the economic crisis.
• Stick to AAA-rated low duration funds and bonds over high duration funds, and long-maturity bonds as yields will remain volatile in the near future