4 Big Reasons of Various Stock Market falls in 2018

Hi,

In this post you will learn about the main reasons behind the stock market share prices' decline in the year 2018. In the year 2017, the share market was booming.

For a general idea about the stock market, let's have a look at the NIFTY 50 index. It constantly rose from a level of 8000 to 10500 in the year 2017. While in the year 2018 there were bug rises and falls, and the year ended without any significant gains in the index. The two major falls were as following.

1. One can see a sharp decline in the index from a level of 11150 to 10000 in the months of Feb-March. 

2. And the second and the major fall came in September when it fell from 11750 to again almost touching the level of 10000.

Now let's try to understand the reasons behind these falls.

1) the first fall of March was mainly due to the international events. America and China trade wars remained quite in news this year. America wanted to suppress the import of Chinese goods and increase the exports. Of course, China wouldn't want that to happen.

This trade war resulted in certain global sell offs and it is considered as the main reason behind this fall. It is said that America has lost this war, because the imports from China have swollen, while the export of goods to China from USA has fallen.

2) The second reason is the 10 lakh Crores of NPAs of the banks. Public Sector Banks have 86% of these NPAs, while private banks have 14%. As of 31st March India's NPAs have risen to 9.6% of the total banks' assets(loans.)
If we compare this with the world's major economies we stood at the 2nd after Italy with 16.4% NPAs.

So what are NPAs! NPAs are the loans given by the banks to individuals or companies which are not returned by the person or company even after the 90 days of the due date. We have heard about the Vijay Mallya Scam, Winsom Scam and 2018's Nirav Modi Scam. 

These people have taken the money from the banks and have not returned it. Then government steps in with the recapitalisation plans by paying the tax payers' money to these banks. This creates the liquidity crises and a fear among the investors.

3) IL & FS and NBFC crises.

Infrastructure Leasing and Financial Services limited is a non banking finance company(NBFC) which finances the infrastructure peojects by taking short term loans from banks like SBI or PNB. It also is the major lender to the 9.28 kilometres long Chanani-Nashri tunnel project, located on NH 44 in Jammu and Kashmir.
  IL & FS had a consolidated debt of about 1 lakh crores rupees, and it had startes to default its bank loan depayments. It came into light when it defaulted 450 crores of loan from Small Industries Development Bank of India (SIDBI.) Eventually rating agencies ICRA, India ratings and CARE gave it bad ratings (AA and AI to junk status.) 

Now many mutual funds and banks have big investments in IL & FS, but in the atmosphere of distrust the share prices fell down aiming towards zero. Therefore government had to intervene. The fear got spread into the other companies of NBFCs and consequently to the whole share market. This was the main reason behind the September's fall.

4) Elections bring a lot of excitement and volatility in the market. The recent legislative assembly elections' results in the five states have created a lot of volatility and it will continue till the general elections to be held in the April and May months of the year 2019.

So the market will likely show more ups and downs in the first half of the year 2019. As per the various opinion poll results the BJP govt is likely to form the cabinet once again, but let's see what happens because nobody knows the future.

Thanks!