If you think just Donald Trump's Tariff WarIf the weak earnings of the companies or the lethargy of the international market are the reason for the decline of the Indian stock market, then think once again.
Every year in Indian markets in the month of March Liquidity means cash It is seen, especially Mid-cap stocks There is more pressure on. It is not a matter of once, but This happens every year in March।
Why does cash crust in March?
The month of March is one of the most difficult months for the Indian financial system. The main reasons for this are:
Advance tax payment:
- Companies and rich individuals have to deposit a part of their income as tax in four installments throughout the year.
- Its last and largest installment 15 March One has to deposit, which reduces the amount of cash available in banks.
- The government does not spend this tax immediately, due to which this money remains with the RBI and there is a shortage of cash in the market.
Financial Year-Ed Settlements:
- Companies on a large scale in March to clean their balance sheet Bonus payment, supplier payment, and working capital management She does
- During this time GST payment One has to do, which removes a large amount of cash from the banking system.
Government borroving:
- The government has its own A huge amount of bonds and treasury bills released in March to reduce financial deficit Have to do it.
- This increases government borrowings, which makes loans expensive for private companies and banks.
Mutual funds and NBFC pressure:
- In March, investors redeem their mutual fund investments in large quantities.Especially From debate mutual funds।
- This makes mutual fund companies forced to sell bonds and other properties, increasing the bond yield in the market and reduces liquidity.
- NBFCs have difficulty repaying their debtBecause banks also take care in giving loans at this time.
RBI Reserve Requirements (CRR and SLR):
- Cash Reserve Ratio (CRR) And Statutory liquidity ratio (SLR) Under this, banks have to keep a part of their deposits with RBI.
- Banks keep more cash deposits to strengthen their balance sheet in MarchWhich reduces liquidity in the market.
What happens in March?
Interest rates increase:
- When banks are short of cash, they take loans at higher interest rates than each other.
- From this Call Money Market The cost of borrowing increases in.
- Also for companies Short term loan becomes expensive।
Stock market declines:
- When cash is tight, institutional investors (FIIS and mutual funds) start selling their holdings.
- Mid-cap and small-cap stocks the biggest decline It is, because these shares have more institutional participation.
RBI intervention:
- Reserve Bank of India (RBI) Open Market Operations (OMO) And Variable Rate Repo (VRR) Trys to insert cash through schemes like plans.
- But by the end of March, the situation still remains tense.
Is this an opportunity for investors?
Yes! This decline can be a good opportunity for long-term investors.
- Liquidity problem in March Is temporaryAnd in the month of April Cash starts returning to the market।
- Investors who want to buy shares for a long period, can currently buy good stocks at cheap prices.
- Especially Mid-cap and small-cap stocks Can get attractive valuations in.
Indian market every year in March Liquidity crunch Passes through, which increases interest rates and declines the stock market.
The main reasons behind this are:
- Advance Tax and GST Payment
- Balance sheet closing of companies
- Government borrowing and bond yield increase
- Pressure on mutual funds and NBFCs
- Reserve requirements of banks (CRR and SLR)
However, this decline is temporary and the market starts to improve again in April. Long -term investors should find opportunities at this time and consider investing in good shares.