E-Paper
Crude oil jump, Iran war, Houthi attacks: Why the stock market plunged before recovery today
While the Sensex closed 120.83 points down at 74,781.76, the Nifty 50 plunged about 79.70 points to close at 23,398. 10.
Prefer HTon Google
The key stock market benchmarks, the BSE Sensex and the NSE Nifty, crashed early on Friday amid a weak global trend, compounded by escalations between the US and Iran in West Asia. At one point, Sensex had lost 700 points, but it later recovered much of the losses.
While the Sensex closed 120.83 points down at 74,781.76, the Nifty 50 plunged about 79.70 points to close at 23,398. 10.
According to a report by Mint, investors lost about ₹6 lakh crore within the first five minutes of trade as the overall market capitalisation of BSE-listed firms dropped to nearly ₹478 lakh crore from nearly ₹484 lakh crore in the previous session.
This came as US stocks fell overnight amid a rise in key inflation data, heightening market concerns. Moreover, rising tensions between the US and Iran, as well as developments on the Houthi-Saudi front, also added to concerns on Wall Street.
The Dow Jones Industrial Average and S&P 500 fell 0.6 per cent each, while the Nasdaq Composite fell 0.65 per cent.
Asian markets also suffered deep losses amid rising global bond yields, driven by heightened concerns over an inflation flare-up and monetary tightening.
Japan's Nikkei, Korea's Kospi, and Taiwan's Taiwan Weighted crashed up to 3 per cent.
Reasons for the Indian stock market crash in early trade
The initial crash in the Indian stock market happened due to these key factors:
Crude oil jumps above $108 per barrel: Crude oil benchmark Brent crude reclaimed the $108 per barrel mark after fighting between Yemen-based Houthi militants and Saudi-backed forces intensified, raising concerns over deeper supply disruptions from the West Asian region.
The Houthis threaten the Red Sea oil route, a key shipping lane for global oil trade. Houthis gained control over Yemen's port city of Mocha on Thursday and advanced toward the Red Sea coast to strategic islands.
This, coupled with already-escalating tensions between the US and Iran in the Persian Gulf and the Strait of Hormuz, threatens to upend a significant share of the global oil trade once again.
US President Donald Trump on Thursday said that he doesn't regret the ongoing Iran war despite the impact the conflict may have on the November US midterm elections.
US bond yields surge: Rising bond yields in the US are another major factor behind the fall in global stock markets, as they can potentially trigger massive foreign capital outflow.
US 10-year bond yields touched 4.98 per cent on Friday, amid concerns over inflation and increasing US debt. According to experts quoted by the Mint, the market appears nervous about the prospect of rate hikes by the US Federal Reserve, which is also lifting yields.
Other factors: Apart from all that, the influx of initial public offerings (IPOs), the anticipation of a rate hike by the US Federal Reserve next week, and the rupee's fall against the dollar are also among the key factors behind the fall in the domestic market.
Most experts believe the Fed may increase interest rates on 16 September, after data on Thursday showed that the August Producer Price Index rose 0.4 per cent, following an upward revision of July data to a 0.1 per cent gain.
Moreover, the rupee declined by 5 paise against the US dollar in trade on Friday.
