Stock market crash: Falling for the fifth consecutive session, the Indian stock market benchmark Sensex declined almost 1,200 points on Friday, December 20, after the US Fed signalled the pace of rate cuts could be slower going ahead.
Sensex opened at 79,335.48 against its previous close of 79,218.05 and dropped 1,343 points to the day’s low of 77,874.59. Similarly, Nifty 50 opened at 23,960.70 against its previous close of 23,951.70 and dropped over 400 points to 23,537.35.
Eventually, the Sensex closed 1,176 points, or 1.49 per cent, down at 78,041.59. The Nifty 50 settled at 23,587.50, down 364 points, or 1.52 per cent.
The mid and small cap segments suffered even deeper losses. The BSE Midcap and Smallcap indices dropped 2.43 per cent and 2.11 per cent, respectively.
The overall market capitalisation of the BSE-listed firms dropped to nearly ₹441 lakh crore from nearly ₹450 lakh crore in the previous session, causing investors to lose nearly ₹9 lakh crore in a day. Over the last five days of losses, investors have lost ₹18 lakh crore, as the overall market capitalisation of BSE-listed firms stood at ₹459 lakh crore on Friday, December 13.
Sectoral indices today
All major sectoral indices on the NSE suffered losses today. Nifty Realty cracked 4 per cent, while PSU Bank and IT indices plunged almost 3 per cent each. Nifty Metal, Media, Auto and Nifty Bank index fell up to 2 per cent.
Why is the Indian stock market falling today?
Let’s take a look at five key factors behind the selloff in the Indian stock market today:
1. The US Fed factor
Despite the US Federal Reserve trimming its benchmark interest rate by 25 basis points to 4.25-4.50 per cent on December 18—in line with market expectations—its rate cut outlook dampened market sentiment worldwide. The Fed revised its rate reduction outlook, projecting only two more rate cuts of a quarter-percentage point by the end of 2025 as against the market’s expectations of three or four rate cuts.
2. Foreign capital outflows
The sustained selling of Indian equities by foreign institutional investors (FIIs) has been a key reason behind the recent downturn in the Indian stock market.
FIIs have sold off Indian equities worth over ₹12,000 crore in the last four sessions amid a strengthening dollar, rising bond yields and the prospects of fewer rate cuts by the US Fed next year.
Foreign capital outflows have been weighing on market sentiment, even as buying by domestic institutional investors (DIIs) cushions the fall in the domestic market.
“The FII buying witnessed in early December is getting reversed now with this week’s selling reaching ₹12229 crores. This change in FII strategy is getting reflected in market trends, too, with large-caps, particularly financials, coming under pressure due to FII selling. This trend is unlikely to sustain and, therefore, retail investors can adopt a strategy opposite to the FII strategy. Quality large-caps will soon bounce back,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
3. Rupee at record low
The Indian rupee hit a historic low of 85.34 per dollar on Friday, damaging 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 weak rupee also simply means higher inflation, as imported goods and raw materials become costlier. And higher inflation means tighter monetary policies, which is again a negative for the market.
4. Macroeconomic headwinds
Fresh concerns have emerged over India’s deteriorating macroeconomic picture, affecting market sentiment.
The country’s trade deficit widened to an all-time high in November.
As Mint reported earlier, 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.
Moreover, the overall economic growth is also showing signs of losing steam. India’s Q2 GDP prints came to the lowest in nearly two years and showed growth slowing for the third consecutive quarter.
5. Uncertainty over earnings recovery
After weak Q1 and Q2 earnings of Indian corporates, all eyes are on the December quarter (Q3) earnings. While experts expect earnings recovery, they hint that a decent recovery could be expected only from Q4.
“We are yet to see data sets that suggest we are seeing a revival in earnings. However, the expectation is that driven by government capital expenditure and other expenditures, a better crop season may lead to a recovery in earnings in Q3 and Q4,” Santosh Kumar Singh, Fund Manager at Motilal Oswal Mutual Fund, told Mint.
“Unless we see a sharp recovery in earnings, which is not visible yet, we may see CY25 be muted from a stock price performance perspective. The revival in earnings growth would be a key trigger for the market,” Singh said.
The article originally appeared on Mint.