Why markets crashed yesterday –
Here are the reasons mentioned below –
1. US Recession fears
Fears of a looming recession in the US have given a severe jolt to the risk appetite of investors globally after July payroll data last Friday showed the US unemployment rate jumped to near a three-year high of 4.3 per cent last month against 4.1 per cent in June. July marked the fourth consecutive monthly increase in the unemployment rate.
2. Rising tensions in the Middle East
According to media reports, Iran has vowed to take revenge after Israel killed Hamas political chief Ismail Haniyeh. Haniyeh was killed when he was in Iran to attend the inauguration of newly elected Iranian President Masoud Pezeshkian.
As Mint reported earlier, the rising threats and provocative actions from both sides have heightened fears of an imminent war. The United States is reinforcing its military presence in the region in response to the escalating situation.
Investors across the globe are keenly observing the evolving situation. If the war escalates from the current levels, it will be hit market sentiment strongly.
3. Stretched valuation
The Indian stock market's current valuation is stretched and experts say the market is ripe for a healthy correction.
Valuations in India, driven mainly by sustained liquidity flows, continue to be high, particularly in the mid and small-cap segments. The overvalued segments of the market, like defence and railways, are likely to come under pressure.
4. Unimpressive Q1 result
India Inc.'s June quarter (Q1FY25) result has been mixed and failed to cheer market sentiment. As the current market valuation remains high, experts fear the earnings may not be able to sustain it.
The rally in the recent past has been supported by earnings growth, but experts see some moderation in the earnings of several sectors, which has potentially triggered some profit booking in the market.
