What triggered the stock market crash

After several years of a stunning rise, the Indian stock market has plunged over the past five months, triggering panic among investors.

The benchmark indices Sensex and Nifty have fallen about 15% from their record highs in late September, wiping out nearly all gains made since May.

What is troubling for most investors is that it is still unclear when the market will entirely arrest its slide.

What triggered this crash?

Author Vivek Kaul, who writes on investments and the economy, explained that the basic reason for the crash was straightforward: the overvaluation of stocks.

“The valuations of many Indian stocks were totally out of [touch] with reality with the current earnings [of companies] and the possibility of future earnings,” he told Scroll. “Essentially, that reality has caught up with the stock market.”

Analysts have also pointed at foreign institutional investors selling their holdings as one of the factors leading to the slide. FIIs are large entities, such as mutual funds and sovereign wealth funds, that invest in countries other than where they are based.

They have pulled out nearly Rs 2 lakh crore, or $23 billion, from the Indian stock market since October.

What triggered this?

“If you look at the data over the last couple of years, before they started pulling out, they hadn’t been investing much,” Kaul said. “So the bulk of their buying actually happened...

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