Why Indian Stock Market Is Falling

Article Date: 25-Sep-2018

Reasons can be plenty for stock markets to fall. A few of them has hit Indian market recently therefore approx 8% fall in last 30 days.

Here is Nifty fall in last one month Aug-Sep 2018:

Nifty One Month Aug-Sep-2018

If I have to describe in two words why such a sudden fall then it is – PANIC SELLING.

Here is the panic indicator in stock markets – INDIA VIX:

India VIX on 25-Sep-18

Panic selling has come due to these reasons:

Reason 1) Stock Yes Bank

Reason: RBI denying MD & CEO Rana Kapoor a term extension beyond January 31, 2019.
Why: Reserve Bank of India (RBI), found non-performing assets to have been four times as large on 31 March 2018, than was then acknowledged in audited results. If found to be true then the last financial year of profit is inflated as much as 44%. These were the assets that come under NPA (Non Performing Assets) or Bad Loans. Which means the comoany is not making a profit that it was showing to the country.

Result – Stock Tanks 39% in a few days.

Reason 2) Stock Dewan Housing Finance (DHFL)

Reason: First trigger was the news that DSP mutual fund sold Rs 300 crore worth of commercial papers of DHFL for an implied yield of about 11%. When a bond is sold for a higher yield than normal it signifies that there is a liquidity problem.

What is yield?

The yield is the income return on an investment, such as the interest or dividends received from holding a particular security. The yield is usually expressed as an annual percentage rate based on the investment’s cost, current market value or face value.

11% is high yield compared to the current 8-9%. When there is liquidity problem the person buying the security is taking a risk, so obviously they will buy at higher yield, expecting a higher return.

What is liquidity problem?

You see banking companies or loan companies give a loan at an interest rate for a profit. But from where they get that money? Bank gets from their customers savings accounts but non-banking finance companies borrow money at a lower rate and give to consumers as a loan at a higher rate. The difference is the profit they take.

But what if there are no takers? Or 30% of the loans given come out as bad loans? These companies will face a liquidity problem. Money is going away but not coming back – do not forget that they have also taken a loan that needs to be paid.

What will you do if you own a stock of such a company? Obviously sell. Who will buy? A fool – a speculative trader who is looking to make a quick buck or two. Does he make? No – he takes all the losses. He/She is gifting their hard earned money to smart educated traders.

Who is this speculative trader? Definitely not the educated DIIs and the FIIs, its the retail trader who donates his money to these educated traders and DIIs and the FIIs. I am sure at least 90% of traders who are trading DHFL stock currently do not know why this fall has taken place. All they are doing is this – trader who goes with the flow – sell DHFL, trader who goes against the flow – buy DHFL, technical traders – buy/sell depending on what their software is giving the signals. Eh really? Deepening on a software to earn a living – I would not put a rupee on bet because my software says so. God has given me a brain – I would rather use that.

COPYRIGHT INFRINGEMENT: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However, every trade depends on the trader and his level of risk-taking capability, knowledge and experience. Moreover, stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I do not give tips or advisory services by SMS, Email, WhatsApp or any other forms of social media. I strictly adhere to the laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles on this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given on this website. I am not responsible for any investment decision you take after reading an article on this website. Click here to read the disclaimer in full.

Disclaimer | Privacy Policy | Terms and Conditions | Refund Policy | About Me | Conservative Option Course | 200+ Testimonials - What Traders Say About This Course | Contact Me

My student gets the Winner's Certificate of Zerodha 60-day Challenge - Click here and Open Stock Buy and Sell Free Account with Them Today!!!