4 reasons why markets will crash further

The demonetisation drive announced by the Narendra Modi government has created a severe cash crunch.

 |  3-minute read |   15-11-2016
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The market continued its downward movement on Tuesday after a three-day break. While the Sensex fell 514 points, Nifty was down by 187.5 at 8108 level. We look at four factors why the market fell today.

Cash crunch due to demonetisation: The demonetisation drive announced by the Narendra Modi government has created a severe cash crunch, hitting transactions in consumer durables, real estate, jewellery and auto sectors.

With people looking to exchange Rs 500 and Rs 1,000 notes, these transactions will be now low on priority for those who are struggling to get cash to meet their daily needs. 

PC Jeweller stock fell 26 per cent in early trade to a new 52-week low of Rs 288 on the BSE. Tribhovandas Bhimji Zaveri lost 12 per cent  to Rs 60.50 on the BSE. Gitanjali Gems fell almost 12 per cent to Rs 56.45. Transactions in the sector are mostly done through cash.

Real estate stocks also took a hit as the majority of transactions in the sector include cash payments. Reports say real estate prices are projected to fall by 25 per cent across the country in the near future.

The BSE consumer durable index slumped 900 points in less than two trading sessions, amid low demand projection for goods in the near future as people go hunting for cash countrywide.

The auto sector also sees fall in demand, with the BSE auto index falling almost 1,800 points in the last two trading sessions.

rupee-embed_111516074655.jpg Demonetisation has hit transactions in consumer durables, real estate, jewellery and auto sectors.

Federal Reserve rate hike: As the prospect of the US Federal Reserve raising interest rates rises post Donald Trump's win in the election, emerging markets are feeling the heat.

Possibilities are high that funds will flow out from emerging markets to the US, chasing higher rate of interest.

Under pressure, Asian markets were mixed in trade today. The Shanghai Composite Index lost 0.2 per cent to 3,204.31 points and Tokyo's Nikkei 225 was flat at 17,670.77. Sydney's S&P-ASX 200 tumbled 0.5 per cent to 5,320.60 and Seoul's Kospi was almost unchanged at 1,974.27. Hong Kong's Hang Seng added 0.4 per cent to 22,314.62. Benchmarks in Southeast Asia and New Zealand were mixed.

Rupee's fall: The rupee fell to a five-month low of 67.75, slipping almost 50 paise, tracking movement of the US dollar which hit a 14-month high today. The Indian currency fell due to weak economic data released last week. 

IIP data: The grim IIP data released on Friday hit market sentiment. Industrial production grew a meagre 0.7 per cent in September mainly due to poor show by manufacturing and mining sectors coupled with decline in capital goods output. 

Factory output for the April-September period of the current financial year declined by 0.1 per cent compared to 4 per cent growth in the year-ago period, data released by the Central Statistics Office show.

Factory output, as measured in terms of the Index of Industrial Production (IIP), had grown by 3.7 per cent in September last year.

Also read: Demonetisation haste: History has a warning for Modi

Writer

Aseem Thapliyal Aseem Thapliyal @aseem23n

The writer is a journalism student whose area of focus is business news.

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