Why Stock Market Crash in August 2024

Stock market today: As investor apprehension grew due to growing concerns about the US recession and mounting tensions in the Middle East, the benchmarks of the Indian stock market, the Sensex and the Nifty 50, fell by almost 3% apiece on Monday, August 5. This pattern was mirrored globally.

The Sensex experienced a severe selloff across the board. In contrast to its prior close of 80,981.95, the Sensex opened at 78,588.19 and fell 3.3% to settle at 78,295.86 throughout the session. On the other hand, the Nifty 50 closed at 23,893.70 after starting trading at 24,302.85, a decrease of 3.3% over its previous close of 24,717.70.

In the end, however, the Nifty 50 finished 662 points, or 2.68 percent, short at 24,055.60, while the Sensex closed 2,223 points, or 2.74 percent, lower at 78,759.40. The BSE Smallcap index dropped 4.21 percent, while the BSE Midcap index dropped 3.60 percent.

In the Nifty 50 index today, just five stocks closed higher: HDFC Life (up 0.21%), Britannia (up 0.51%), Nestle (up 0.68%), Tata Consumer (up 0.70%), and Hindustan Unilever (up 1.02%).

The top losers in the index at closing were shares of Adani Ports (down 5.92 percent), ONGC (down 6.39 percent), and Tata Motors (down 7.40 percent).

Today's sharp 42% increase in the India VIX volatility index suggests that the Nifty 50 will have a very bumpy ride ahead of it.

The Indian stock market crash today appears to have been severely impacted by the following five major factors:

1. US Recession fears

Investors' appetite for risk has been severely shaken by worries about an impending US recession after July payroll statistics released last Friday revealed that the country's jobless rate increased to almost a three-year high of 4.3% last month from 4.1% in June. The unemployment rate increased for the fourth month in a row in July.

"Common expectations of a gentle touchdown for the US economy have been the primary driver of the worldwide stock market's rise. The decline in US job creation in July and the significant increase in the US unemployment rate to 4.3% have put this projection in jeopardy, according to V K Vijayakumar of Geojit Financial Services.

Experts predict that the US Federal Reserve will likely decrease interest rates this year despite fear of recession. Some have speculated that the Fed may cut rates by a combined 100 basis points in September, November, and December of this year.
Specialists at JPMorgan predict two rate cuts in November and September, each of fifty basis points.

2. Rising tensions in the Middle East

Iran has reportedly pledged to exact retribution on Israel for killing Ismail Haniyeh, the political commander of Hamas. While in Iran to witness the taking office of Masoud Pezeshkian, the recently appointed Iranian leader, Haniyeh was assassinated.

Worries of an impending war have grown due to both sides' aggressive behavior and growing dangers as Mint has reported. In reaction to the worsening circumstances, the US is stepping up its military effort in the area.
Global investors are keeping a close eye on the changing circumstances. The stock market's attitude will be severely impacted if the battle expands beyond what it is now.

3. Stretched valuation

Experts claim that the current capitalization of the Indian stock market is excessive and that an economic correction is due soon.

The primary reason for India's strong stock values, particularly for mid- and small-cap businesses, is the steady flow of liquidity. The overpriced market sectors, such as railroads and the defensive end, are probably going to face criticism. The buy-on-dips approach, which has been successful during this bull market, is probably under threat right now. There's no reason for speculators to jump into the current downturn. Await the price stabilization, advised Vijayakumar.

The price to earnings (PE) ratio of the Nifty 50 is currently 23.1, which is higher than its two-year average of 21.9, according to the stock research platform Trendline. The index's price versus book ratio of 4.17 is just over its two-year normal of 4.09.

4. Unimpressive Q1 result

The June quarter (Q1FY25) results from India Inc. were inconsistent and did not improve investor mood. Experts worry that earnings could fall short of being capable of supporting the currently elevated market price.

Although analysts see some deceleration in the results of some industries, which may have led to a small profit booked in the market, the current rally has been bolstered by rising earnings.

5. Technical factor where fall of Nifty 50 was below 20-DMA

The 20-day moving average was broken by the Nifty 50, indicating a shaky state of the market.

In the event that the share market ends above 24,400, some analysts think it might recover. But if the index closes below 24,000, there may be a more significant decline.

"The market texture is poor and erratic right now, but we can anticipate one intraday pullback bounce because of transient oversold situations. Right now, 24,000 represents the day traders' instant point of reference. Over this, an intraday decline up to 24,150–24,250 might be observed," according to Chouhan.

Conversely, seller pressure is probably going to pick up speed below 24,000. It might retest the 23,900 level below this. The index might drop much more, reaching 23,800, according to Chouan.

What Raddito Capital Says

Because of the RBI's policies and numerous other global factors, we anticipate that the adjustments will continue in the days to come. All eyes are currently focused on the US economy, thus any remarks made by the US federal government will undoubtedly help the Indian stock market.

It is also mentioned that as long as large and ordinary investors participate, the Indian stock market will continue to be optimistic. Reddito Capital offers the ideal market advice, advising you on what to do when you realize that the market is declining because of external circumstances and that the Indian market is becoming more optimistic because of the increasing involvement of a small group of investors.

A fantastic chance exists, in the opinion of Raddito Capital Expert Investment Advisor, to purchase additional equities when the market plummets. Now is a good moment to acquire more stocks if you have adequate funds saved and own other assets that bring in money. It's important to remember to look at the underlying strength of equities. If this is the case, you should aim toward investing in businesses with solid fundamentals. The rationale for this is straightforward: a stock market meltdown indicates that all prices are declining, making it the ideal time to invest low and sell high.