Banks Won’t Tell You, But They Are Ready For A Market Crash

Let’s take ICICI Bank, my bank. A not-so-little bird there informed me that internal research teams have already informed the management that the Sensex may fall to 74,000 points or lower, by the time the results of the Assembly polls in Maharashtra and Jharkhand are out. Depending on the outcome, Father Sensex may decide to move up in life, or take his clan lower downstream.

But the Assembly results are not what has been driving the Sensex. 

The bloodbath over the last few weeks stems from the heart-warming ‘Global Village’ that we visited in the utopian 1990s; a nice, cohesive and bonded world. Today, the cohesion is visible only in slithering global indices and fluctuating currencies and futures trades, none of which are warming the heart. It is not just India’s Sensex: Market indices worldwide are collapsing.

Wars And Standoffs: Perfect Storm Of Global Unrest

There is war in the air around us. The Israel-Hamas conflict is more than a geopolitical tragedy; it is a numbing economic disruptor, cutting down growth on multiple fronts. “Global energy prices have surged on fears of supply disruptions,” says Natasha Grant, energy market analyst at Bloomberg Intelligence.

Oscillating energy costs have fanned inflationary fires globally, pushing central banks to revisit monetary policies. For emerging markets like India, heavily reliant on oil imports, such fluctuations are a multi-edged sword, impacting fiscal deficits, consumer sentiment and more.

On its own, the Russia-Ukraine standoff continues to send shockwaves across the global grain and energy markets. “The interconnected nature of global supply chains means no economy can insulate itself from such shocks,” says Dr Rajesh Nair, economist at the Indian Council for Research on International Economic Relations (ICRIER). Ripple effects are evident in rising food prices and disrupted exports, painting a grim near-term picture.

Market Wild Card: US Presidential Elections

This is a wild card indeed, one that has played both Bluff and Poker with Indian markets. Sure, the US Presidential elections have always led to market jitters, but the effect of the 2024 chapter was particularly precarious.

There was an innate possibility of change in leadership and (therefore) a shift in policy directions; these created massive uncertainties. Markets despise uncertainty.

“The decline in the S&P 500 reflected investor anxiety over possible regulatory changes, fiscal policies and international relations,” notes Alan Jacobs, strategist at Morgan Stanley.

The tremors were felt well beyond Wall Street, as the US dollar’s ambivalence affected global trade and debt repayment calendars. India felt the after-shocks too; markets slithered as if on black ice, and the rupee weakened against the dollar, increasing the burden of dollar-denominated loans, both straining an already wavering corporate sector.

Latest All-Round Criminal, Climate Change

Climate change is a new villain in the saga of turbulence witnessed in the market. Catastrophic weather events — from floods in Asia to wildfires in the Mediterranean — disrupted agriculture, insurance and tourism. Indian stock markets felt the jitters when unseasonal rains in the north caused crop damage, leading to a never-before spike in food prices.

“Investors are becoming increasingly wary of sectors directly affected by extreme weather patterns,” says Priya Menon, sustainable finance expert at the Centre for Climate and Environmental Research (CCER). The rise of environmental, social and governance (ESG) investing is a silver lining, but the transition to stronger economies is threatened by its own demons, including short-term market instability.

In the larger scheme of things, India’s stock market — once a beacon of resilience during global crises — is showing signs of strain. The Sensex and the Nifty have seen significant periodic drops, reflecting a mix of domestic and global reversals. Both indices are down from lifetime highs to levels they saw over 15 months back.

Corporates Immune, But Middle-Class Investors In Panic

Legendary investor Peter Lynch once said: “People who succeed in the stock market accept periodic losses, setbacks and unexpected occurrences.” This wisdom rings true now more than ever. But while it may provide solace to hardened big-ticket market players, the small middle-class SIP investor or stock market puppy is doing everything but wag his happy tail.

Investors seeing their savings dwindle are becoming alarmed. Arvind Sharma, a schoolteacher from Jaipur, has invested in mutual funds to secure his post-retirement life. “I thought I was safe with diversified funds, but global factors are hitting everything,” he laments. His plight is shared by millions of small investors who are now rethinking their strategies.

At the end of the day, the only way forward for the small investor is to take the advice of my ICICI Bank’s not-so-little-bird. “Stay invested. After slipping to 74,000 points, plus-minus a bit, the Sensex will stabilise and slowly begin its trudge back up,” his research team confidentially informed the blue-chip bank’s management class.

The problem for the smaller investor is immediate. In the Sensex’s clamber-down from 84,500 points, those with market exposure have lost Rs 7 lakh crore for every 1,000-point slip. Simple math shows that by the time ‘stability’ arrives at 74,000 points, investors would have lost Rs 70 lakh crore. That is a number giving even big investors sleepless nights.

Other than slithering numbers and grim personal tales, the factors and data discussed in this analysis tell us a core story; Markets are not just financial ecosystems, they are mirrors of human behaviour. Wars, weather and politics impact markets not due to algorithms or trading bots, but because human events resonate with the very kernel of certainty and hope.

Stock market crashes are reminders of how intertwined our destinies are and how collective resilience can be the only antidote to chaos in today’s global village. We created this village; we have to learn to live in it.

Soliloquy: Hotels in India’s hills (especially where snow beckons) are booked solid each year from December 1 through February 28. This year is different. Lower, off-season rates are already being quoted from January 7 itself, which means that the hotelier community has smelt the coffee and are preparing for tough times. 

(The writer is a veteran journalist and communications specialist. Views are personal)