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The Indian stock market in 2024 experienced significant volatility driven by a confluence of factors, primarily stemming from governmental policies, regulatory actions, and the outcomes of several crucial elections. The year witnessed a flurry of activity, with the Securities and Exchange Board of India (SEBI) implementing significant regulatory changes and the Reserve Bank of India (RBI) taking decisive action against several financial institutions. Simultaneously, the results of the Indian Lok Sabha elections, the US Presidential election, and the Maharashtra state assembly elections profoundly influenced market sentiment and investor behavior.
SEBI's actions were pivotal in shaping the market landscape. The introduction of stress tests for mutual funds aimed to enhance transparency regarding liquidity, addressing concerns about potential market instability arising from the sharp rise in small-cap stocks. The regulator's comprehensive overhaul of the futures and options (F&O) sector was arguably more impactful, reflecting concerns about the high rate of retail investor losses in this segment. The changes, including increased lot sizes, reduced weekly expiries, and larger contract sizes, were intended to mitigate volatility and protect retail investors. These measures demonstrate a proactive approach by SEBI in regulating the market and safeguarding investor interests.
The election cycle in 2024 profoundly affected market performance. The Indian Lok Sabha elections, producing an unexpected result with the BJP-led NDA failing to secure an outright majority, sent shockwaves through the markets, leading to significant declines in benchmark indices. The subsequent Maharashtra state assembly elections, however, brought relief with the BJP's strong performance alleviating concerns about political stability. Meanwhile, the US Presidential election outcome, with Donald Trump's victory, positively impacted Indian markets, particularly the IT and pharma sectors, anticipating a boost from a stronger US dollar and potentially more favorable trade relations.
The Union Budget 2024-2025, while initially perceived as populist, also played a role in shaping market trends. Significant allocations towards rural development, employment, and skill-building were largely anticipated, but the unexpected increase in Securities Transaction Tax (STT) on derivatives and adjustments to long-term capital gains (LTCG) and short-term capital gains (STCG) taxes caught investors off guard. These measures, aimed at increasing government revenue from the thriving stock market, contributed to market fluctuations.
The RBI's aggressive actions against various financial institutions added another layer of complexity. The central bank's intervention regarding microfinance institutions (MFIs), gold financiers, and digital lenders like Paytm Payments Bank, and even a major private sector bank like Kotak Mahindra, highlighted concerns about regulatory compliance and risk management within these sectors. These actions, while contributing to market uncertainty in the short term, ultimately aimed to strengthen the financial system's stability and protect consumers.
In conclusion, the Indian stock market's performance in 2024 was a complex interplay of governmental policies, regulatory interventions, and election outcomes. SEBI's regulatory changes, the RBI's oversight actions, and the budgetary decisions, combined with the surprise election results in India and the US, all contributed to the significant volatility observed throughout the year. The interplay between these events underscores the interconnectedness of political, economic, and regulatory factors in shaping the nation's financial markets. Understanding the dynamics of these elements is crucial for navigating the uncertainties inherent in the Indian stock market.