What fuelled the stock market volatility in August? ET Wealth examines the reasons behind the recent volatility
After a historic high on the first trading day of August, the Nifty 50 index turned volatile due to various factors, including the unwinding of yen carry trade. ET Wealth analyses the factor that led to the recent instability.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Most major markets fell due to the unwinding
Global markets crashed on 5 August.Nearly all major world markets fell, with Japan, South Korea and Australia registering the most decline.Markets in Europe, the USA and South America also tumbled.Indian equity benchmarks, Nifty 50 and BSE Sensex, lost 2.7%.Markets stabilised after BoJ ruled out further rate hikes in the near term.
India's yen assets have grown the fastest in 18 months
Yen-denominated assets in global equity funds (ex-Japan) stood at $350 billion in August 2024, a growth of 75% since January 2023, according to an Elara Securities report.India¡¦s yen-denominated assets have grown from $6 billion to $21 billion between January 2023 and August 2024.$45 billion has flowed into global equities since January 2023.45% of these flows were in global funds, 33% in USA and 23% in India.In India, a significant portion (25%) of yen flows were in mid-cap funds between April and September 2023. Since then, flows have shifted to large-cap funds.
Has the risk of unwinding settled down?
Analysts fear there are possibilities of further unwinding in the short term.A Reuters news article quoting UBS says that only 50% of the carry trade is liquidated.Sharp rise in yen could make Indian markets volatile
The Elara Securities report states that the yen unwinding is a real threat for India as it had caused significant damage to the market breadth (in midand small-cap segments) in a similar unwinding in 2018-20.Strong JPY appreciation against the rupee in the last three unwinding periods (2011-12, 2015-16 and 2018-20) led to a significant market correction.If the unwinding triggers again, the impact on Indian markets will depend on the ability of domestic investors to absorb supply. Tighter regulations by the RBI, substantial forex reserves and strong macro fundamentals are expected to provide support, states an AnandRathi report.
Capital goods, auto sectors will be impacted the most
Infrastructure investments (roads, power, steel) may be negatively impacted.Companies have raised low-cost yen loans to fund their capital expenditure.A strong yen could increase the debt servicing cost of such companies.A strong yen can also increase the cost of imports from Japan and will affect India's trade balance.Capital goods and automobile sectors will see the most impact due to the unwinding.
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This story originally appeared on: India Times - Author:Faqs of Insurances
