Stock market crash: Why is the Indian stock market declining today? The Sensex breaks 1,200 points.
The Indian stock market has experienced a downturn, with the Sensex and Nifty 50 indices declining for four straight sessions, including Thursday, December 19. Over these four days of market decline, investors have seen their wealth diminish by nearly ₹13 lakh crore.
The Indian stock market experienced substantial declines during early trading on Thursday, December 19, with the benchmark Sensex plummeting nearly 1,200 points and the Nifty dropping back to the 23,870 mark after the US Federal Reserve indicated that the pace of interest rate reductions might slow down in the future.
The Sensex started at 79,029.03, down from its previous close of 80,182.20, and fell by 1,162 points to reach a low of 79,020.08 for the day. Likewise, the Nifty 50 opened at 23,877.15, compared to its last close of 24,198.85, and decreased by 329 points to 23,870.30.
The total market capitalization of companies listed on the BSE fell to approximately ₹446.5 lakh crore from ₹452.6 lakh crore in the prior session, resulting in a loss of ₹6 lakh crore for investors within just a few minutes of trading. Over the past four days of declines, investors have seen a nearly ₹13 lakh crore decrease, as the overall market capitalization of BSE-listed companies was at ₹459.4 lakh crore on Friday, December 13.
What is causing the decline in the Indian stock market today?
Here are five important factors contributing to the decline of the Indian stock market today:
1. The US Fed factor
The US Federal Reserve lowered its key interest rate by 25 basis points to a range of 4.25-4.50 percent on December 18, which was in line with what the market anticipated. However, the Fed’s outlook on future rate cuts has negatively affected global market sentiment. The central bank adjusted its forecast, now expecting only two additional rate cuts of a quarter-percentage point by the end of 2025, contrary to the market’s expectation of three or four cuts.
Major Asian stock markets experienced a significant decline after the S&P 500 and Nasdaq dropped by 3 percent, while the US dollar surged to its highest level in nearly two years following comments from the US Federal Reserve.
“Although the 25 basis point rate reduction aligned with market expectations, the forecast of only two additional 25 basis point cuts in 2025, as opposed to the anticipated three or four, unsettled investors, leading to a significant decline on Wall Street,” noted V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
2. Capital outflows from foreign sources
The ongoing sell-off of Indian stocks by foreign institutional investors (FIIs) has significantly contributed to the recent decline in the Indian stock market.
Foreign Institutional Investors (FIIs) have divested over ₹8,000 crore in Indian stocks over the past three trading sessions, influenced by a strengthening dollar, increasing bond yields, and expectations of fewer interest rate reductions by the US Federal Reserve in the coming year.
Foreign capital outflows have been impacting market sentiment, even as purchases by domestic institutional investors (DIIs) help to mitigate the decline in the domestic market.
3. Rupee reaches all-time low
The Indian rupee reached an unprecedented low of 85.3 against the dollar on Thursday, negatively impacting market sentiment.
A weak rupee discourages foreign investors from investing in the Indian market. It reduces their gains when they convert them back into their home currencies, leading to foreign capital outflows and further pressuring the markets.
A depreciating rupee leads to increased inflation, as the costs of imported products and raw materials rise. In turn, elevated inflation results in stricter monetary policies, which negatively impacts the market.
4. Economic challenges on a large scale
Concerns have arisen regarding the worsening macroeconomic situation in India, which is impacting market sentiment.
The trade deficit of the country reached a record high in November.
the trade deficit, or the amount by which the value of imports exceeds exports, hit a record $37.84 billion, compared with $21.31 billion in November 2023. A Bloomberg economists’ poll had predicted a deficit of $23 billion.
India’s economic growth appears to be losing momentum. The GDP figures for the second quarter reached their lowest point in almost two years, indicating a slowdown in growth for the third straight quarter.
5. Uncertainty regarding the recovery of earnings
Following the lackluster earnings reports from Indian companies in the first two quarters, attention is now focused on the earnings for the December quarter (Q3). While analysts anticipate a recovery in earnings, they suggest that a significant rebound may not be seen until Q4.
“We have not yet encountered data sets indicating a resurgence in earnings. Nevertheless, it is anticipated that increased government capital spending and other expenditures, along with a more favorable crop season, may contribute to a recovery in earnings during the third and fourth quarters,” stated Santosh Kumar Singh, Fund Manager at Motilal Oswal Mutual Fund.
“According to Singh, unless there is a significant rebound in earnings, which is currently not apparent, the stock price performance for CY25 may be lackluster. A resurgence in earnings growth would be a crucial factor for the market.”
Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
