The Nifty 50 index plunged on Monday, joining other global stocks in a meltdown that has wiped out trillions of value in the last three market days. It crashed to a low of ₹21,755, its lowest level since June 4 last year. It has now plunged by over 17% from its highest point in 2024. This article explores why the crash seems like an overreaction.
Is the Nifty 50 Index crash an overreaction?
The Nifty 50 index plunged as the outlook for global stocks darkened after China reacted to Donald Trump’s tariffs. Beijing retaliated by imposing tariffs of its own and other measures, including ruling banning rare earth exports to the US and adding more companies to its entity list.
The tit-for-tat measures may continue as Trump has insisted that he will retaliate against tariffs too. In a statement on Monday morning, he said that his tariffs would be the only cure to the large trade deficits that the US has with other countries.
Still, there are signs that the ongoing Nifty 50 index crash is an overreaction. That’s because, while some constituent companies are global brands that may be affected by a global recession, many don’t do much of their business in the United States.
For example, Trent share price crashed by over 15% on Monday even though the company has no exposure to the US. It has dropped by over 42% from its highest point in 2024. The ongoing plunge happened after banks like Morgan Stanley and Goldman Sachs reduced their targets after it missed its Q4 targets.
Infosys share price crashed by 7% on Monday. While the company does a lot of business in the US, its solutions will not be hit by Trump’s tariffs. Its stock has retreated recently because of Elon Musk’s DOGE cuts.
Other top laggards in the Nifty 50 index, like Tech Mahindra, Oil and Natural Gas Corp, Bajaj Auto, Adani Ports, and Jio Financia, have no major presence in the US.
Nifty Index companies with exposure to the USA
However, some of the worst Nifty 50 Index stocks like Tata Steel, Tata Motors, Hindalco Industries, and Reliance Industries, are exposed to the US.
Tata Steel, one of the biggest players in the steel industry, does not have a major exposure to the US since it sells most of its products to India, Europe, and Southeast Asia. However, steel is a global commodity that is impacted by global issues. It would be affected if the world sinks into a recession.
Hindalco Industries’ share price also dropped because of its Novelis brand, which does a lot of business in the US. Novelis is a major part of its business, accounting for about 60% of its revenue.
Meanwhile, Tata Motors has an exposure to the US through its Jaguar and Land Rover brands. Land Rover has decided to pause its shipments to the US as the trade war escalated.
Nifty 50 index analysis
The daily chart shows that the Nifty 50 index has plunged this year. It moved to a low of ₹21,755, its lowest level since June last year. It has plunged by over 16% from its highest point in 2024.
The index has plunged below the 50-day and 200-day Weighted Moving Averages (WMA). It also moved slightly below the key support at ₹22,000, its lowest swing on March 4.
It is also nearing the lower side of the descending channel. Therefore, there is a likelihood that the blue-chip index will bounce back if the trade tensions ease. If this happens, it may soar to the psychological point at ₹23,000.
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