Stock market crash: NIFTY below 24,000, SENSEX sheds over 2300 pts; Key factors behind market fall

Indian markets began the first trading day of the week on a negative note, with NIFTY50 and SENSEX declining significantly. The broader markets also opened on a negative note. In the early trading session, all the major sectors were trading in red, with NIFTY Realty and NIFTY PSU Bank among the top losers. The India VIX has surged over 19%, trading above the 17-mark, hitting a fresh 8-week high.

Why are the markets falling like a pack of cards?

The Indian markets are experiencing a downfall mainly due to the unwinding of yen carry trade, geopolitical tensions, and fears of a slowdown in developed economies.

The Bank of Japan’s decision to raise interest rates has driven the yen to its strongest level against the US dollar since March, leading to the unwinding of the yen carry trade. Carry trades involve borrowing money in a currency with the lowest interest rates (Yen) and deploying it in assets in other markets, offering a higher rate of return. The assets could be bonds, equities, or commodities.

However, on Monday, Japan's yen hit its highest levels in 7 months against the dollar. Hence, the returns on carry trades shrink, prompting traders to unwind their positions. This sell-off is across the asset class, leading to market turmoil on Monday.

Besides this, recession fears in the US economy amid the rising unemployment rate, weakening manufacturing index, and lowering of treasury yields have made investors cautious. According to experts, tracking the development in the US markets and economy is crucial as foreign investors may take positions based on the US market movement.

Other key factors that led to market downfall include weak Asian markets, rising tension in the Middle East region and unimpressive Q1 earnings.

Meanwhile, On Friday, August 02, 2024, foreign institutional investors (FII) offloaded shares worth ₹3,310 crore, while domestic institutional investors (DII) bought shares worth ₹2,965.9 crore.

The Labour Department reported a 1,14,000 increase in non-farm payrolls last month, falling short of the 1,75,000 forecast by economists and the 2,00,000 needed to match population growth. The unemployment rate rose to 4.3%, approaching a three-year high.

These figures fueled concerns that the economy is slowing more than expected and that the Federal Reserve may have made a mistake by keeping rates unchanged in its recent policy meeting.

The US 10-year treasury yield dropped over 1% to 3.73%, while the U.S. 2-year bond yield fell nearly 2% to 3.80%.

Brent crude futures dipped by 4 cents, or 0.1%, to $76.77 per barrel, while U.S. West Texas Intermediate crude futures fell 13 cents, or 0.2%, to $73.39 per barrel.