Factors Responsible for Stock Market Crash

The stock market is one of the most popular investments in India. The Indian Stock Market has seen an increase in the number of investors in recent years and it is expected that this trend will continue in the future. There are many reasons why people choose to invest in the Stock Market.

But there are times when the market faces a severe downfall. Stock Market Crash is the drastic fall in the price of shares and other equity securities, which can cause widespread damage to investor confidence.

The Stock Market Crash is one of the most significant events in financial history. It has left a lasting impact on the world economy.

The causes of a Stock Market Crash are varied, but it usually occurs when people feel that something is wrong with their investments. Also, there are many ways and strategies to prevent Stock Market Crash.

Here are Factors that are Responsible for Stock Market Crash

Varying Interest Rates

Varying interest rates are one of the most common factors that affect the Indian market. When interest rates rise, it makes sense that investors will look for higher returns on their investments, which will attract new capital into the market.

On the other hand, when interest rates fall, it means that banks and other financial institutions have less money to lend out. 

This means that they may not be able to attract money from investors and consequently may not be able to lend out as much money as they did before. It can be one of the main factors that is responsible for a market crash. 

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Declining Economy

The Indian economy is expected to grow at 14-14.5 per cent in the first quarter of fiscal year. 

The slowdown in economic growth can hit businesses hard, as companies are unable to invest and hire workers as fast as they used to before.  

Inflation has been on an upswing for the last few months, and it seems like it will continue rising for some time. 

The Reserve Bank of India (RBI) has cut its policy rates several times since December 2018, but inflation still remains at high levels. All these factors can affect your investment decisions in India.

Financial and Political Shocks

The government’s decision to demonetise high value currency notes had an impact on the economy as people could not exchange their old currency notes for new ones immediately after demonetisation was announced.

This led to a cash crunch which affected businesses and consumers. Also, there were reports of corruption during the note ban process which led to uncertainty regarding future policy decisions by the government leading to economic slowdown.

Deflation

Deflation is one of the most important factors that led to the fall in the Indian stock market. The Indian economy was growing at a very high rate and so was its GDP. 

But then suddenly, there was deflation which means that prices of goods and services have started falling. This caused a lot of problems for companies that are selling their products based on their costs, cost of raw materials etc.

If a company sells its product at Rs 100 but it costs Rs 90 then it will have to reduce its price so that people can buy its product even if it is more expensive than before. 

If a company sells its product for Rs 60 but it costs Rs 90 then it will have to increase product price so that people can still afford buying their product even if it is more expensive than before.

Final Note

The reason why this event happened is because it occurred at a time when most people had lost their savings through bank failures, unemployment and other factors that affected the economy during that era. 

This led to many people losing faith in the stock market, which then caused a decline in prices.

Make sure you seek the guidance of professionals like TradingBells before investing your money in the stock market.

In times of stock market crashes, you can avoid losses by maintaining your portfolio with the help of industry experts.