 You are watching News Made Easy. I am Anandya Chakravarty. Is India's stock market honeymoon over? And of course, I don't mean that the honeymoon is over forever. Markets are likely to give good returns in the long run. But the amazing run that we've seen from the middle of March, end of March 2022, the end of October 2021 is that over. And the first signs of weakness have already started showing. As you know that if I just take a look at what has happened to the Nifty, which is one of the benchmark indices, as you know, 50 top stocks in the Indian stock markets. It tells us more or less the temperature of the stock markets. What has happened there? On October 19, the high that the Nifty hit was about 18,600 odd. And on 29th of October, it hit a low and these are not closing. It's intraday high and low. It hit a low of about 17,600 odd. So almost a thousand point gap between the high and the low on the Nifty. That is 5.2% down in just 10 days. 5.2% difference that you can see between the high and the low for the Nifty. Of course, the closing is different. And right now the Nifty is looking better than that 17,600. But many market watchers fear that this is just the beginning because after all, what drives the stock markets? If one looks at it, there are three key things that drive stock market prices. The first that most people will try to tell you is the earnings prospects of companies that have shares. How much profit are they going to make in the future? Because the markets are always believed to be future. They look towards the future and they kind of discount the past. The prices already builds in whatever earnings have already been taken and estimates are made. What is this stock going to look like in the future? How much money is this stock going to make? How much profit is a company going to make? And that is what gets generally rewarded in the markets. And we know that in the last few quarters, we've had record profits for India Inc. And that is why the markets have gone up. The second big thing is liquidity. And what is liquidity in the financial system? It means how easy is it to raise money to invest in the markets? If it's very easy to raise money to invest in the markets, then you can actually leverage yourself. What does leverage mean? You can borrow and invest in the markets knowing that the interest that you're going to pay on the loan that you've taken is going to be lower than the returns you're going to make from the market. So in a sense, you're gambling or betting on other people's money knowing that the markets are going to go up or betting that the markets are going to go up. So when interest rates are low, when there's a lot of liquidity, where there's a lot of money sloshing around in the system, then it becomes much easier to borrow and invest. And when interest rates go up, obviously the expense, the cost of investment goes up as well. And the final thing, the third point is investor sentiment. How are investors sensing that the market or companies are going to shape up? How the economy is looking? Are they feeling positive about the future? Are they feeling that things have gone up too much? And now maybe it's time for what is called a correction or a drop in the markets. All right, the number one thing that is poking the markets right now is inflation fears. And why is that? Because prices of major industrial inputs across the world, mostly metals, chemicals, crude oil, right? These are major inputs into any industrial process. They've all gone up sharply. And this huge rise, of course, is a condition thing to worry about. And then we know that China again is showing signs of another wave of COVID. Very small, but China Act reacts very quickly with lockdowns. And there are worries about disruptions in supplies from China, not only because of the revival of COVID, but also because China is currently facing a massive power crisis. Power crisis in the sense of electricity, not just political power. It's facing a crisis and therefore certain supplies are stuck, including for brands which are launching new things like Apple. It's stuck. Things are not coming from China. So when things don't come, supplies down, obviously those prices increase. So there's that inflation. U.S. companies, American companies have suddenly started worrying about wages, that they're having to pay too much very high wages. And if the wages go up and input costs also rise, their margins will shrink. And Indian companies, many Indian companies in their latest commentary that they give to investors, they said that the input price rise they've seen recently in this quarter or in the last few months is the highest that they've seen. It's unprecedented. And by unprecedented, obviously they mean in the recent past. Maybe it's gone a lot in the years when inflation was very high, but in the recent past they haven't seen anything like that. And what does that mean? High input costs obviously will hit margins because we know that the recent profit growth that we've seen in the last one year, record profits of corporate India, has been driven by low wage growth, but even lower input costs and interest costs. And that is why even though they sold fewer items, their revenues didn't grow too much, their profits grew a lot because their margins grew. And companies are now worried that these margins will drop. And investors are also obviously worried because inflation affects that. And there's also another fear that central banks across the world, because what happens is when inflation goes up, central banks raise interest rates to reduce demand and bring inflation down. And central banks have, there has been commentary talk, that inflation to curb inflation, central banks will have to raise their interest rates. And if interest rates go up, inflation goes up. What happens? It affects profit margin and liquidity. Those two things that I spoke about earlier. Okay, number two, big funds because of inflation fears, because of liquidity fears has started selling. And if you look at it, FII is a foreign institutional investors. Those who invest in Indian share markets, right, they've sold a total of $1.21 billion worth of stocks in October. Okay, $1.21 billion. And even DII is a domestic institutional investors, which is mutual funds, insurance companies. They have also sold shares worth nearly $6,000 crores. And when we say sold, we mean net sold, which means they bought stuff, but they've sold more. So nearly $6,000 crore. And if you look at it, this is the first month since July that FIIs have net sold. And first month since February, that domestic institutional investors have net sold, sold more than they've bought. All right? And now we come to the point about retail investors. And we know that there's been a huge retail participation since the last one and a half years. Retail means small investors. They have invested quite a bit. And retail investors, as the great point goes, as you can see on chat groups and stuff like that, are now worried. And those who arrived late in the game, they are worried because they got into some stocks and those stocks have corrected much more that the index tells us and they've lost money. So they're worried they're sitting there. And you know, once you get burnt, you don't want to, you're twice shy, right? You don't want to invest more. And many investors are now thinking that, okay, FIIs are leaving. Domestic institutional investors are selling. Let us book profits. And what does book profits mean in the stock markets? Booking profits essentially means that you sell stocks to take away whatever profits you've made, right? So you might not sell your entire portfolio. Let's say you bought stuff worth 100 rupees and that became worth 150 rupees. So you sell stocks worth 50 rupees to take away your profit and still hold the portfolio. But that means it's selling pressure. And when they're selling, what happens is the market weakens. So this is the first sign of weakness I told you since March of 2020. And for many, many weeks, this is the first time that there has been a negative wave. This is the first bad week that we've had the biggest correction in the last two weeks that we've had since the beginning of the COVID lockdowns. And that is why we're asking the question and not just us, many people are asking the question, is this temporary honeymoon that we sell temporarily over? Are we going to see a market correction or even the market's moving sideways for a long time? Well, in the stock market, you can't really predict anything for far too long but that's what it looks like right now. Maybe things will change, we'll come back and tell you more about that later in some other show. Thank you so much for watching. Keep watching NewsClick. Do like us. Click on that subscribe button and do share this video.