How Recession Affects the Indian Stock Market

1. How Recession Affects the Indian Stock Market A Recession in a nation's economic activity is referred to as a recession. The Gross Domestic Product of a nation may decline because of this slowdown, which could extend for two or more quarters (GDP). Along with the GDP, other economic measures such as business profits, employment prospects, and more see a fall. During a recession, commercial and industrial activity decreases. In the end, this results in a decline in the GDP as a whole. Many investors mistake a depression, which is a considerably more serious situation, for a recession. Let us examine the distinctions between the two. Recession's effects on the stock market A fall in the stock market Recession means a falling economy, which, in turn, causes the stock market to fall too. There are reduced commercial operations, limited disposable income in households, and reduced demand, all of which

2. pushes the stock market down. Furthermore, market sentiments turn negative, and a bearish trend prevails. Another thing to note is that a recession in one country not only affects its domestic stock market but also has an international effect. The 2008 financial crisis is a leading example of this. The recession that started in the United States caused a stock market crash in India. The crisis was triggered when a housing market bubble that was formed burst. After a series of reckless lending, when it was time to pay back the loans, people started defaulting. This led to multiple banks failing, credit tightening, and global trade declining. From what started in the US, the massive economic shock resulted in a ripple effect across the globe, with economies slowing down worldwide. The Dow Jones index was at a historical low on 19 September 2008. Just as the stock market in the US fell, the Indian exchanges saw a similar fate. Increased volatility As the market falls, there is also a marked increase in stock market volatility as long-term investors as well as traders look out for reduced stock prices to add quality stocks to their portfolios. If there are too many buyers, the buying pressure on the stock might temporarily increase its price. This increased volatility makes the stock market swing unpredictably, making stocks an unfavorable choice for many. Now that we understand the impact of the recession, let us explore the reasons behind one of its major consequences – the fall in the stock market. Read more about the stock market effects of the recession