The Indian stock market is facing a sharp downturn as both Sensex and Nifty 50 drop significantly on December 19, 2024. The Sensex saw a fall of nearly 1,200 points, marking a worrying trend that’s been unfolding over the past few days. Here’s a deep dive into the key factors behind the market’s struggles.
The Indian stock market has been on a rough ride over the past few days. On Thursday, December 19, the Sensex nosedived nearly 1,200 points in early trade, pushing it to a low of 79,020.08. Similarly, the Nifty 50 dropped by over 300 points, falling to 23,870.30. This steep fall in the market wiped out nearly ₹13 lakh crore of investor wealth in just four days.
The overall market capitalisation of BSE-listed firms slid to ₹446.5 lakh crore from ₹452.6 lakh crore, signaling the depth of the sell-off. Investors are feeling the pinch as the broader market trends reflect a sea of red. So, what’s really causing this widespread panic and sharp sell-off in the Indian stock market? Let’s break it down.
1. US Fed’s Slow Pace of Rate Cuts
The most significant driver of today’s market turmoil can be traced back to the actions of the US Federal Reserve. On December 18, 2024, the US Fed decided to reduce its key interest rate by 25 basis points, bringing it to 4.25%-4.50%. While this was in line with expectations, the accompanying outlook from the Fed raised concerns. The central bank projected only two more rate cuts by the end of 2025, instead of the market’s anticipated three or four.
This shift in outlook sent shockwaves through global markets, including in India. The Fed’s cautious stance led to a slump in the S&P 500 and Nasdaq, both of which fell by 3%. The US dollar also surged to a near two-year high. As foreign capital adjusts to these changes, the ripple effects have impacted Indian investors, leading to a sell-off across Asia, including the Indian market.
“Despite the 25-basis-point cut being in line with market expectations, the indication of a slower pace of rate cuts spooked investors globally,” noted V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. This sentiment has left many nervous about the prospects for economic growth in the coming year.
2. Foreign Institutional Investors Pull Out
Another critical factor contributing to the market’s downward spiral is the sustained sell-off by foreign institutional investors (FIIs). Over the past few sessions, FIIs have dumped over ₹8,000 crore worth of Indian equities. This exodus of foreign capital is linked to several global economic factors, including a strengthening US dollar, rising bond yields, and the uncertain outlook of the US Federal Reserve’s policy.
The increase in US bond yields, in particular, makes US assets more attractive, drawing funds away from emerging markets like India. As the dollar strengthens and the prospects for aggressive rate cuts diminish, FIIs are pulling back from Indian markets in favor of safer, more stable investments in the US.
This capital flight adds further pressure on the already jittery market. As a result, domestic investors are also becoming more cautious, heightening the downward momentum.
3. Rising Bond Yields in the US
Alongside the Fed’s slower rate cut plans, rising bond yields in the US are another factor shaking investor confidence. Bond yields have been increasing steadily, driven by concerns about inflation and global economic stability. When bond yields rise, investors typically move away from riskier assets like stocks in favor of safer, fixed-income investments like government bonds.
For Indian investors, this shift in global sentiment is translating into more sell-offs. Rising US bond yields could lead to an extended period of low liquidity in emerging markets like India, compounding the losses. As a result, investors are increasingly reluctant to take on the volatility of the stock market.
4. Domestic Economic Concerns
In addition to the global factors, domestic economic concerns are also playing a role in today’s market slump. Despite the government’s efforts to stabilize the economy, India continues to face structural challenges such as inflationary pressures and slower-than-expected growth in key sectors.
Higher inflation erodes the purchasing power of consumers, leading to weaker corporate earnings. Slower growth in sectors such as manufacturing and services also dampens investor optimism. As these concerns build, market participants become more hesitant, causing further declines in stock prices.
5. Global Market Sentiment
The final piece of the puzzle lies in the overall sentiment in global markets. The US and European markets have been under pressure in recent weeks due to concerns about inflation, interest rates, and geopolitical risks. As these markets adjust, emerging economies like India are feeling the impact.
The pullback in global stock markets creates a risk-off environment where investors seek safer assets. As a result, riskier assets like Indian stocks are often sold off in favor of more stable investments. This global trend has intensified the pressure on India’s stock market, amplifying the losses over the past week.
| Key Factors Impacting Indian Stock Market | Details |
|---|---|
| US Fed’s Rate Outlook | Slow pace of rate cuts, causing global market volatility |
| Foreign Capital Outflows | Over ₹8,000 crore worth of Indian equities sold off by FIIs |
| Rising US Bond Yields | Bond yields attract investors away from Indian stocks |
| Domestic Economic Concerns | Inflation and slower growth in key sectors affecting sentiment |
| Global Market Sentiment | Risk-off mood worldwide hitting emerging markets like India |
The Indian stock market is currently in a fragile state, buffeted by both domestic and global headwinds. With the continued sell-off and global uncertainty, it remains to be seen how investors will respond in the coming days. One thing is clear: the road ahead is likely to remain bumpy for Indian markets in the near term.
