Business News | Financial Turmoil Hits Indian Stock Market: Iranian-Israeli Conflict and US Inflation Catalysts

NewsVoir

Mumbai (Maharashtra) (India), May 10: In a tumultuous turn of events, the Indian stock market witnessed a staggering fall of over 800 points in April, resulting in a loss of nearly 5 Lakh crores. Analysts are now warning of an impending financial tsunami as tensions between Iran and Israel escalate, coupled with the specter of soaring US inflation, which threatens not only to destabilize the Indian market but also send shockwaves through the US and European financial sectors .

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Insights from Rajesh Shukla, Chief Strategist, National Intellectual Advisory (NIA) and Mentor for Venture Studio Capital, Jagoo Nari and Padhega Bharat.

Key contributors to the market decline:

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1. Iran-Israel Conflict: Escalating tensions and military actions in the Middle East have injected profound uncertainty into global geopolitical dynamics. Iran’s bombardment has further fueled concerns and led to widespread selling in the Indian stock market as investors grapple with the specter of increased instability.

2. Weak global markets: The ripple effects of tensions in the Middle East reverberated across global markets, leading to a downturn in US stocks. When the Indian market opened, it succumbed to the prevailing negative sentiment.

3. Rising US Dollar Rates: The relentless rise of the US dollar, with the dollar index nearing 107 levels, has heightened concerns. Moreover, the unprecedented rise of the US dollar to a 34-year high against the Japanese yen has led to a surge in US government bond yields, triggering a sell-off in global equity markets, including India.

4. Escalating Crude Oil Prices: Crude oil prices have risen to a six-month high in both domestic and international markets, witnessing a 6 percent increase in March 2024 alone. This increase, compounded by a further 3 percent increase in April, poses significant challenges to the Indian and global economies, putting pressure on the local currency and fueling inflationary pressures.

5. Exodus of Foreign Institutional Investors (FIIs): Against the backdrop of geopolitical uncertainty and rising US dollar rates, FIIs have withdrawn from the Indian stock market. This trend, which has strengthened over the past week, has been exacerbated by the outbreak of conflict as investors choose to hold liquid assets amid increased uncertainty.

Looking forward

While India faces immediate challenges, there are also silver linings amid the storm. Despite the market turbulence, India’s outlook remains promising and offers robust opportunities for both domestic and global investors. Sectors such as tourism, aviation, hospitals and road infrastructure offer attractive investment prospects, buoyed by India’s fast-growing economy, which has surpassed $3.60 trillion and continues to grow at a rate of more than 8% per annum. This is in stark contrast to the slower growth trajectory of the Chinese economy, which is currently stuck below 2%.

In conclusion, while current market volatility underlines the challenges ahead, it also underlines India’s resilience and potential for sustainable growth. As investors navigate the choppy waters, strategic investments in key sectors hold the promise of lucrative returns in an evolving economic landscape.

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