Why do Sensex and Nifty fall suddenly? Does the stock market crash just because of bad news? Know the 5 biggest reasons for market decline and what investors should do at such times.
Stock Market Explained: If you also invest money in the share market, then it is natural for your heartbeat to increase as soon as you see ‘red colour’ on the screen. As soon as news like ‘Sensex fell by so many points’, ‘Huge fall in Nifty’ comes, new investors get scared and start panic selling. But have you ever wondered why the green looking stock market suddenly turns red? Actually the market does not fall due to any one reason. The politics, economy of the country and the world and the ‘psychological fear’ of the investors themselves work behind this. Understand the secret on which your stock market runs!
How does the stock market decide whether to go up or down?
Share price depends on demand and supply. If there are more buyers of shares of a company, the price increases. But if there are more sellers, the share price starts falling. When this situation happens with a large number of companies, the entire stock market comes down.
5 biggest reasons for stock market fall
1. Bad economy news
If a country’s economy starts slowing down, inflation increases or unemployment starts increasing, then investors start worrying about the profits of the companies. In such a situation, people start selling shares, due to which the market may fall. For example, if it is estimated that the sales of companies will be low in the coming months, then investors can sell shares in advance.
2. Increase in interest rates
When the central bank (RBI in India) increases interest rates, loans become expensive. This may increase the costs of companies and may also reduce the expenses of people. In such a situation, investors become alert and the market goes down.
3. Weak results of companies
If the profit of a big company is less than expected or its future projections are weak, then its shares fall. If the results of many such big companies are bad, then the entire market can be impacted.
4. Events happening around the world
India’s stock market is connected to the world. War, epidemic, natural disaster, sharp rise in oil prices or economic problems of big countries also affect the Indian market.
5. Fear among investors (Market Sentiment)
Many times the market is driven not only by news but also by the emotions of investors. If people feel that the market will fall further, they start selling shares quickly. This may further accelerate the decline.
Does the market always keep falling?
No. Both fall and rise in the stock market are part of the normal process. There have been big declines in the markets from time to time, but in the long term many markets have also recovered. However, past performance is no guarantee of the future.
What should investors do when the stock market falls?
- Do not take any decision in haste.
- Do not invest on the basis of rumours.
- Analyze your financial condition and risk power before investing.
- If needed, seek advice from a registered financial expert.
- It is considered important to be patient in long term investment.
Content Source: SEBI, NSE, BSE, RBI, Investor.gov (US SEC).
Disclaimer: This article has been prepared for general information and educational purposes only. Investing in the stock market is subject to risk. The information given here is not investment advice. Before investing in any share, mutual fund or other financial product, assess your financial position, risk appetite and seek advice from a SEBI-registered financial advisor, if needed. Past performance of the stock market does not guarantee future returns.