On August 5, 2024, the fear of recession in US caused panic in stock markets around the world. The biggest decline of 12.40 percent was recorded in Japan’s Nikkei, the leading share market of Asia, while Korea’s Kospi recorded a decline of 8.77 percent.

The US stock market Nasdaq recorded the biggest decline of 4.95 percent, while in the Europe, Germany’s stock market, Dax recorded the biggest decline of 2.34 percent. At the same time, the Sensex in the Indian stock market closed at 78,759 with a decline of 2,222 points, 2.74 percent, while the Nifty recorded a decline of 662 points, 2.68 percent and closed at 24,055.

In the Indian stock market, metal, government bank stocks particularly State Bank of India and media stocks fell by more than 4 percent, while auto, IT, and oil and gas stocks fell by more than 3 percent. Investors who invested in Tata Motors, Adani Port, Tata Steel and Power Grid stocks suffered the biggest losses.

There are many reasons for the panic in the stock market, but the most important reason among them is the fear of recession in US. The likelihood of war between Iran and Israel, geopolitical crises such as the war between Russia and Ukraine continuing for a long time, constant uncertainty in the global market, etc. also caused the world’s big investors to start selling, which caused panic in the stock markets of many countries of the world.

Except India, many developed countries of the world are struggling with the problem of inflation since the Corona pandemic and some countries are in a state of recession, while some countries are fearing recession. US is also one of them among such countries.

The most important reason for the biggest decline in Japan’s Nikkei stock market is the Bank of Japan raising the interest rate from 0.1 percent to 0.25 percent, which is the highest level in 15 years. At the same time, the valuation of shares in the mid and small-cap segment in the Indian stock market is very high. Therefore, a fall in this segment clearly means that a phase of correction is going on in this segment. Also, the rupee is weak.

This is the second biggest fall in the Indian stock market in 2024. Earlier on June 4, the Sensex had fallen by 5.74 percent. Investors have suffered a loss of Rs.16.00 lakh crore due to selling in the stock market, due to which the overall market cap of the companies listed on the Sensex came down to Rs.441 lakh crore on August 5.

Since, in the past months, there has been a huge reduction in the number of foreign investors and the amount of investment in the Indian stock market. Therefore, the prospect of recession in US or the continuation of the slowdown in the world or the apprehension of downturn in some countries will not have much impact on the Indian stock market.

The position of the stock market in India continues to remain strong on the strength of domestic investors. In 2024, domestic investors have invested more than Rs.2.28 lakh crore in the stock market. Not only this, domestic investors have played an important role in taking the Sensex from 75,000 to 80,000. Companies like Reliance, Mahindra & Mahindra, ICICI Bank, Bharti Airtel, State Bank of India and HDFC Bank have also played an important role in taking the Sensex from 70,000 to 80,000.

Talking about sectors, banking, BSE Power, BSE Realty, Auto, Telecom etc. have helped in maintaining the boom in the shares. Apart from Sensex, Nifty 50 is also continuously showing an upward trend. In the coming days, it may touch the level of 26,000 to 27,000 and by the end of this year, it may close at the level of 30,000.

Hon’ble Mrs. Nirmala Sitharaman has again become the Finance Minister. Therefore, it is expected that the government will continue its old policy towards the banking and economic sector, as the earlier policies of the government have helped in strengthening the Indian economy and accelerating the pace of development.

India is continuously moving forward on the development front. The GDP growth rate in the fourth quarter of the financial year 2023-2024 was 7.8, while it was 6.1 percent in the same quarter last year. At the same time, the GDP growth rate in the financial year 2023-24 was 8.2 percent, which is 1.2 percent more than the estimate of the Reserve Bank of India. According to the Ministry of Statistics, the growth rate remained high in the period under review due to strong performance in the manufacturing and mining sectors. The manufacturing sector has grown by 9.9 percent, which was minus 2.2 percent in the financial year 2022-23. Similarly, the mining sector grew at a rate of 7.1 percent during the financial year 2023-24, which was 1.9 percent in the financial year 2022-23.

According to the National Statistical Office, retail inflation in June rose by 0.33 percent to 5.08 percent as compared to May, while in May it was 4.75 percent, which was the lowest level in 12 months. There was some reduction in retail inflation in the month of April, but it was slightly higher than May at 4.83 percent. Retail inflation was 4.81 percent in June 2023, while it was 4.44 percent in July 2023. The central bank is very sensitive about inflation and it wants to keep the economy strong by maintaining a balance between inflation and growth rate.

Here, despite the lending interest rate remaining at a high level for the last few months, loan disbursement is increasing, because the banking sector remains strong, which is giving strength to development. In such an environment, it is natural for Sensex and Nifty to remain bullish. In the short term, the Indian stock market has plunged due to concerns arising from global economic activities, but there is little chance of such a situation being repeated.

Nevertheless, big investors who buy and sell shares every day need to keep a close eye on the domestic and foreign markets and global movements. The stock market is a kind of casino and those who always dream of becoming rich with the help of this platform need to be cautious. Otherwise, the proverb “Saavdhani Hati, Durghatna Ghati” can come true at any time, but those investors who invest only in the shares of premium companies and always remain satisfied with low profit, need not worry at all.

Satish Singh, Ahmedabad based Senior Columnist. Views are Personal