Why did it matter that the stock market crashed

Posted: GenadyXL On: 02.07.2017

A few days ago the United Nations pinned India as the fasted growing economy of the world. India's economy for the third quarter grew 7. Not that this is a great figure given the expectations of investors but it is way better than Russia, Taiwan and Brazil that are facing recession.

Not to mention China's growth falling to the lowest level in 25 years. Now here is the question -- if everything is so peachy, then why did the Nifty index break the level, which was last seen in the pre-Modi era? Are the reforms going haywire or are the policies not hitting the right chord?

Well, it is neither. Here are the three critical reasons that explain the massive sell-off in India.

why did it matter that the stock market crashed

If the financials of a company are weak, it is going to fail, no matter the kind of policy you follow. This is what exactly happened with India. Investors have gradually lost interest in India's growth story because of ever-increasing NPAs and bad loans of public sector banks.

This amount is more than enough to cripple any financial system in the world. InRBI chief Raghuram Rajan offered an opportunity to banks to clean up their mess by offering five interest rate cuts.

But the problem came when in a bid to increase profitability the banks did not pass the benefits to the end-customers. This limited the credit growth and hence, the whole plan backfired. This plan, too, backfired.

why did it matter that the stock market crashed

Offering more funding gave banks an opportunity to play with liquidity which ultimately resulted in the creation of more provisions. This leniency negatively impacted the banks' financials. Believe it or not, the NPA ratios are as same as the numbers recorded just before the recession in started. In a matter of just one year, the market value of almost all public sector banks, including the State Bank of India, have more than halved due to the NPA woes and poor profitability.

Ever since ex-Federal chief Ben Bernanke stepped down and Janet Yellen took his place, she has been talking about raising interest rates. However, she never actually did so until December The very mention of "raising interest rates" by Yellen created panic amidst wild speculation in emerging economies like India.

Top 3 Reasons Why The Indian Stock Market Crashed

The impact of the statement is such that it strengthens the US dollar which in turn results in capital outflows from emerging economies leading the investors to turn towards the safe haven, gold.

Just a month after raising interest rates, Japan introduced an era of negative interest rates. This February, referring to the negative interest ratesshe refuted any chances of slashing down the interest rates in the negative zone. While her statements are not uncalled for, I believe one has to take into account the holistic kse stock broker including speculators, investor sentiment and riskiness of equities.

Technically, India is benefitting from the crude oil crash but it is still one of the prominent reasons why the stock markets crashed.

why did it matter that the stock market crashed

This isn't just a commodity, but something that runs a country's manufacturing and industrial plants. A crash in crude oil indicates a supply glut. Lower demand takes place when an emerging economy is not producing enough. This ultimately leads to a slower growth. This will definitely have a lasting impact on both developed and developing economies, and has already stalled growth of countries like China, Russia and Brazil.

The crude oil crash has indirectly had a negative impact on steel producing countries like India, pushing steel-making companies towards losses.

The crude oil crash has also pushed prices of commodities like iron and steel to multi-year lows. This 5 decimal base binary options signals indirectly had a negative impact on steel producing countries like India, pushing steel-making companies towards losses.

A loss-making company cannot repay dues from banks, which results in a bad debt or an NPA. This is vicious circle which can only be broken if crude oil stabilizes at a particular level so that countries can strategize a way out of the crisis.

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