An aggressive statement by US President Donald Trump shook the financial markets around the world on Thursday morning. India also did not remain untouched by this global shock and the stock market fell drastically in the early trading itself. The portfolios of common investors turned red within a few minutes and an atmosphere of panic was created in the market. But, the fear that was visible in the morning was transformed into a wonderful recovery by the afternoon. This huge ups and downs is a great opportunity for the common investor to understand how the Indian market maintains its balance and strength even amidst global stress.
A statement which created panic in the markets around the world
On Wednesday evening, President Trump gave an important address in a tough tone regarding Iran. He clearly warned that America is very close to its military goals and in the next two-three weeks there will be such a strong attack on Iran that it will go back to the ‘Stone Age’. This strong statement created huge panic in Asian markets and emerging economies. Indian markets also opened under the shadow of this fear. Within no time, the Sensex fell by almost 1,400 points and the Nifty recorded a huge fall of 2%. During trading, Sensex had slipped below the important level of 71,545.81 and Nifty 22,200, due to which there was great disappointment among the investors.
A ray of hope amidst despair, market makes a great comeback
The stock market is always a game of uncertainties and possibilities. The situation started changing rapidly on the afternoon of Thursday 2nd April. The Sensex, which was diving in the morning, took a huge jump of 1,500 points from its low levels and returned back into the green. Nifty also showed its strength and regained the figure of 22,600. At around 2:30 pm, the Sensex was trading at 73,179.04 with a marginal gain of 44.72 points (0.061%). At the same time, Nifty also strengthened by 15.95 points (0.070%) and reached the level of 22,695.35. This return shows how much ability the Indian market has to withstand external shocks.
From decline to profits, 3 big reasons for this magical recovery
After all, how did the market bounce back so quickly after this huge fall? There were three main reasons behind this, which changed the direction of the market.
- Heavy buying at lower levels: When the market fell by more than 2%, savvy investors saw it as an opportunity to buy good shares cheaply. Due to this ‘value buying’, the Nifty Midcap index came down by 2.3% from its lowest level of the day. Most interest was seen in IT and tech companies. Shares of LTI Mindtree jumped more than 2% and Coforge jumped by 3%. Good growth was also recorded in Persistent Systems and KPIT Technologies. The result was that Nifty IT index became the only sector with a gain of 1.76%, most of whose shares were in the green.
- Rupee made the biggest jump in 12 years: The second major support to the market was the unexpected strength of the Indian rupee. The rupee strengthened by nearly 2% to 92.8725 against the dollar on Thursday, after the Reserve Bank of India (RBI) cracked down on speculation against the rupee’s exchange rate and a crackdown on foreign derivatives. This is the biggest jump of the rupee after September 2013. The special thing is that when the currencies of other countries were weakening, the rupee was showing its strength. Meanwhile, the market took a different direction due to Trump’s speech not giving any clear deadline for ending the war.
- Strong technical base: Stock market experts and technical analysts believe that technically Nifty was successful in maintaining the important level of 22,220. Due to this support level not being broken, the confidence of investors remained intact and they got the confidence to take long positions (long term investments).