Stock market crash: As of Thursday, December 19, the benchmarks of the Indian stock market, the Sensex and the Nifty 50, have been declining for four straight sessions. During these four days of market selloff, investors have lost nearly ₹13 lakh crore.
Stock market crash: Following the US Fed's indication that rate reduction may proceed more slowly in the future, the Indian stock market saw severe losses in early trading on Thursday, December 19. The benchmark Sensex fell about 1,200 points, and the Nifty plummeted down to 23,870.After closing at 80,182.20, the Sensex began at 79,029.03 and fell 1,162 points to 79,020.08, the day's low. Similarly, the Nifty 50 fell 329 points to 23,870.30 after opening at 23,877.15 compared to its previous finish of 24,198.85.
Investors lost ₹6 lakh crore in a few minutes of trading as the total market capitalization of the BSE-listed companies fell from ₹452.6 lakh crore to about ₹446.5 lakh crore in the previous session. Given that the total market capitalization of companies listed on the BSE was ₹459.4 lakh crore on Friday, December 13, investors have lost around ₹13 lakh crore over the past four days of losses.
What is behind today's decline in the Indian stock market?
Let's examine the five main causes of the current decline in the Indian stock market:
1. The Fed factor in the US
The US Federal Reserve's rate-cut outlook tempered global market mood even though it lowered its benchmark interest rate by 25 basis points to 4.25–4.50% on December 18, as the market had anticipated. The market had anticipated three or four rate cuts by the end of 2025, but the Fed changed its forecast and only projected two additional rate cuts of a quarter percentage point.
as the US Fed's comments, the US dollar surged to almost a two-year high, and major Asian markets fell as the S&P 500 and Nasdaq fell 3%.
Although the 25 basis point rate drop was consistent with what the market had anticipated,Wall Street saw a dramatic sell-off when the market was alarmed by the prospect of only two 25 basis point cuts each in 2025, as opposed to the three or perhaps four cuts that were anticipated, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
2. Outflows of foreign money
One of the main causes of the current decline in the Indian stock market has been the ongoing dumping of Indian stocks by foreign institutional investors (FIIs).
In response to a strengthening dollar, rising bond yields, and the likelihood of fewer rate reduction by the US Fed next year, FIIs have sold off Indian stocks worth over ₹8,000 crore during the past three days.
Even if domestic institutional investors' (DIIs') purchases are mitigating the decline in the local market, foreign capital outflows have been negatively impacting market sentiment.
3. A record low for the rupee
Thursday's historic low of 85.3 per dollar for the Indian rupee hurt market sentiment.
Foreign investors are deterred from making investments in the Indian market by a weak rupee. When they convert their earnings back into their home currencies, it lessens them, which causes outflows of foreign capital and puts additional pressure on the markets.
Because imported goods and raw materials become more expensive, a weak rupee also simply equals increased inflation. Additionally, stricter monetary policies are a result of greater inflation, which hurts the market once more.
4. Headwinds in the macroeconomic
Market sentiment has been impacted by new worries about India's worsening macroeconomic situation.
In November, the nation's trade deficit reached a record high.
The trade deficit, or the difference between the value of imports and exports, reached a record $37.84 billion, up from $21.31 billion in November 2023, as Mint previously reported. A Bloomberg survey of economists had projected a $23 billion deficit.
Furthermore, there are indications that general economic growth is slowing down. For the third straight quarter, growth slowed, and India's Q2 GDP prints reached their lowest level in almost two years.
5. Uncertainty regarding the return of earnings
All eyes are on the December quarter (Q3) profits after Indian corporates' poor Q1 and Q2 results. Although analysts anticipate a recovery in profitability, they suggest that a strong recovery may only be anticipated starting in Q4.
"Data sets that indicate a recovery in earnings have not yet been presented to us. A better crop season, however, is anticipated to result in a recovery in earnings in Q3 and Q4, driven by government capital spending and other expenditures," Santosh Kumar Singh, Fund Manager at Motilal Oswal Mutual Fund, told Mint.
"CY25 may be limited from a stock price performance perspective until we see a significant turnaround in earnings, which is not yet evident.Singh stated that the market would be significantly triggered by the recovery in profit growth.
What is behind today's decline in the Indian stock market?
Let's examine the five main causes of the current decline in the Indian stock market:
1. The Fed factor in the US
The US Federal Reserve's rate-cut outlook tempered global market mood even though it lowered its benchmark interest rate by 25 basis points to 4.25–4.50% on December 18, as the market had anticipated. The market had anticipated three or four rate cuts by the end of 2025, but the Fed changed its forecast and only projected two additional rate cuts of a quarter percentage point.
as the US Fed's comments, the US dollar surged to almost a two-year high, and major Asian markets fell as the S&P 500 and Nasdaq fell 3%.
Although the 25 basis point rate drop was consistent with what the market had anticipated,Wall Street saw a dramatic sell-off when the market was alarmed by the prospect of only two 25 basis point cuts each in 2025, as opposed to the three or perhaps four cuts that were anticipated, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
2. Outflows of foreign money
One of the main causes of the current decline in the Indian stock market has been the ongoing dumping of Indian stocks by foreign institutional investors (FIIs).
In response to a strengthening dollar, rising bond yields, and the likelihood of fewer rate reduction by the US Fed next year, FIIs have sold off Indian stocks worth over ₹8,000 crore during the past three days.
Even if domestic institutional investors' (DIIs') purchases are mitigating the decline in the local market, foreign capital outflows have been negatively impacting market sentiment.
3. A record low for the rupee
Thursday's historic low of 85.3 per dollar for the Indian rupee hurt market sentiment.
Foreign investors are deterred from making investments in the Indian market by a weak rupee. When they convert their earnings back into their home currencies, it lessens them, which causes outflows of foreign capital and puts additional pressure on the markets.
Because imported goods and raw materials become more expensive, a weak rupee also simply equals increased inflation. Additionally, stricter monetary policies are a result of greater inflation, which hurts the market once more.
4. Headwinds in the macroeconomic
Market sentiment has been impacted by new worries about India's worsening macroeconomic situation.
In November, the nation's trade deficit reached a record high.
The trade deficit, or the difference between the value of imports and exports, reached a record $37.84 billion, up from $21.31 billion in November 2023, as Mint previously reported. A Bloomberg survey of economists had projected a $23 billion deficit.
Furthermore, there are indications that general economic growth is slowing down. For the third straight quarter, growth slowed, and India's Q2 GDP prints reached their lowest level in almost two years.
5. Uncertainty regarding the return of earnings
All eyes are on the December quarter (Q3) profits after Indian corporates' poor Q1 and Q2 results. Although analysts anticipate a recovery in profitability, they suggest that a strong recovery may only be anticipated starting in Q4.
"Data sets that indicate a recovery in earnings have not yet been presented to us. A better crop season, however, is anticipated to result in a recovery in earnings in Q3 and Q4, driven by government capital spending and other expenditures," Santosh Kumar Singh, Fund Manager at Motilal Oswal Mutual Fund, told Mint.
"CY25 may be limited from a stock price performance perspective until we see a significant turnaround in earnings, which is not yet evident.Singh stated that the market would be significantly triggered by the recovery in profit growth.
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