InvestorQ : Why did the Nifty and the Sensex correct so sharply? Was it a reaction to the Trump announcement?
Crowny Pinto made post

Why did the Nifty and the Sensex correct so sharply? Was it a reaction to the Trump announcement?

Answer
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Aashna Tripathi answered.
1 year ago


The Trump announcement was one of the main reasons for the sharp correction in the stock markets. Trump has said that the US will impose higher punitive tariffs on Chinese imports to the tune of $325 billion. The tariffs will be increased from 10% currently to a new high of 25%. Global markets were worried that this would lead to a full-fledged trade war and that could have larger consequences. For example, if the US makes Chinese exports costlier then China may weaken the Yuan to make their exports viable. That would force the Indian rupee to also weaken and that could trigger an all round currency war across emerging markets. Normally, most economies lose out in a currency war. There is also the demand concern that if the trade war continues then the US and Chinese economies could slow down. These are the two largest economies in the world with annual GDP of over $33 trillion. It would be a big setback for global trade, consumption demand and also for export markets.

In the Indian context, there is the worry about worsening credit profile of a number of private banks and NBFCs and not surprisingly they were the biggest losers in the market. Metal stocks also took big hits after the fears of a slowdown in China hit the prices of most metals ranging from copper, nickel, zinc to steel and aluminium. Recently, some of the FMCG companies like Hindustan Unilever, Britannia and Godrej Consumer showed weak growth due to tepid rural demand. That also had an impact on the markets. The sharp correction was an outcome of all these factors with the trade war being one of the key reasons.