Indian markets took a tumble with the BSE Sensex down nearly 1000 points during intra day trade. While a sharp reaction in the markets was expected post the government’s late Tuesday crackdown against black money, the US Presidential elections outcome in favor of Republican nominee Donald Trump has also contributed to the fall in the markets.
At 1:40 pm, the BSE Sensex recovered from the day’s low and is trading 560 points lower while the Nifty is trading at 170 points down from Tuesday’s close.
Here are 4 reasons why investors have reacted sharply today
1) Rs 500 and Rs 1000 taken out of circulation:
500 and 1000 rupee denominated notes are no longer legal tender. This is expected to go a long way in the government’s battle against black money and is likely to bring billions of rupees back into banking channels. But this process of exchange is likely to involve major logistics and administrative challenges thereby squeezing liquidity in the short term. This sudden move by the government is also expected to hit the real estate sector hard as it thrives on cash transactions the most. NBFCs and Banks are also expected to feel the squeeze if loans extended to the real estate sector come under stress. Consumer durables is another sector which may also feel the heat due to this move.
Delta Corp, DLF, Housing Development & Infrastructure (HDIL), Indiabulls Real Estate, Unitech, Oberoi Realty, Sunteck Realty and DB Realty were among few real estate stocks, down between 12% 20% on the BSE.
2) Shock win by Donald Trump in US elections:
This was often spoken about as an improbable situation with most pollsters ruling in favour of Hillary Clinton. But as results started pouring in with Trump leading comfortably, the markets have taken reacted negatively to the news. Trump’s victory is being viewed negatively by global and domestic investors due to his protectionist stance for american jobs and tirade against outsourcing to Indian IT companies. Any reversal in free market policies will mean bad news for Indian IT and pharma companies who are already under pressure due to squeeze in spendings by companies across US and Europe.
3) Trump and global trade disruptions:
Care Ratings say that it is difficult for the global markets to be agnostic as the trend since 1992 has been in favor of US Presidents getting two terms at a stretch. This is likely to have a deep impact on global economic relations including the FTAs signed by USA with other countries. Donald Trump has been highly critical of impending trade deals like the Trans-Pacific Partnership and has even forced Hillary Clinton to become more critical of the deal. This is likely to disrupt world economy – something that global investors dislike as it makes it difficult to predict economic stability.
4) US Fed and stance on interest rates:
The Federal Open Market Committee will meet in Washington on Dec. 13 and 14, deciding once and for all whether rates will rise before year’s end. While a Clinton win would have provided a roadmap on stable economic policies, a Trump presidency will keep the Fed guessing and tentative on monetary policy. While a rate hike is bad news for Indian markets as that means outflow of global funds, economic instability could also mean investors would prefer to sit out on cash till it is clear what a Trump presidency means for the economy.