InvestorQ : What exactly triggered the correction in the Sensex and Nifty during the last week?
Mitali Bhutta made post

What exactly triggered the correction in the Sensex and Nifty during the last week?

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Priyanka N answered.
2 months ago
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On the face of it there appeared to be several factors behind the crash in the markets in the last week of October. But here are 3 principal reasons why the stock markets corrected so sharply in the previous week.

1) It all began with a spate of downgrades. UBS, Morgan Stanley and Nomura downsized their view on Indian equities from overweight to neutral. All the three brokerages cited steep valuations as the key reason why they had changed their view on India. After all, MSCI India index gained 27% when the MSCI EM index had really given negative returns.

2) The second big factor was liquidity tightening at multiple levels. US Fed looks to embark on its taper program by the end of this year and the Fed on 03-Nov could just underline that. Secondly, the RBI announced a variable rate repo (VRR) worth Rs.50,000 crore which is intended to suck out excess liquidity. This is what led to the steep sell-off.

3) One key reason for the panic was the spectre of inflation. High inflation means India’s real rates are already in trouble and that is risking capital outflows. The second part about inflation is more important. There is persistent cost-push inflation caused by supply chain level constraints. We saw FMCG stocks took huge hits in their Q2 results due to a spike in input costs. That is creating a unique problem for Indian companies.

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