If you are an investor in the stock market, the happenings of the last few days must have caused a lot of concern. Remember the black Tuesday of January 22 when the market plummeted by more than 11 per cent during the first few minutes of trade. Nervous sellers pushed the panic trigger, sending the markets into a free fall, until it hit the circuit breaker, which automatically caused all trading to come to a halt, both, at the BSE and NSE. The 30 stock Sensex lost almost 2273 points during the day, before some value buying made it recoup some losses. Finally, it closed the day at 16,729.94 points, still down by 875.41 points. The outlook for the share market seems to have changed overnight. Let’s take a look at the prime factors responsible for such a drastic fall in the markets.

Fears of a recession in the US

One of the biggest reasons for the heavy duty fall in the markets is a fear of recession in the US economy. The global investment climate has changed with the impact of the sub-prime crisis in the US mortgage market taking its toll. Big investment banks and conglomerates are declaring huge losses and investors’ confidence is completely shaken. There is a saying that when the US sneezes, the whole world catches flu. No wonder that most of the economies are having inter-linkages with what is happening there. The after effects are felt in our markets also as the negative impact on IT companies, BPOs, KPOs, export oriented units and other sectors are feared in the long run.

Huge selling by FIIs and hedge funds

Hedge Funds and Foreign Financial Institutions (FIIs) have also started selling in our markets. This is because they want to reallocate their investments and book profits to cut their losses due to the economic meltdown. The volatility of financial markets seen today is the result of continuing and heavy selling pressure by investors of all classes due to uncertain times and events.