Sensex, Nifty Crash: 5 Reasons Why Indian Benchmark Indices Declined In Today’s Trade

Indian benchmark indices witnessed significant losses on December 19 as the 30-share Sensex closed at 79,218.05, down by 1.2% or 964.15 points. On the other hand, the Nifty 50 index closed lower by 1.02% or 247.15 points at 23,951.7 points.

The Nifty 50 declined over 1.35 per cent to hit an intraday low of 24,198.85. On the other hand, the 30-share Sensex fell more than 1.44 per cent to trade at the 79,020.08 level.

The total market capitalisation of BSE-listed firms plunged to nearly Rs 446.5 lakh crore compared to Rs 452.6 lakh crore in Wednesday’s session. Investors lost nearly Rs 6 lakh crore within the first few minutes of trade.

The decline witnessed by Indian stock markets today is likely to have been caused by the US Federal Reserve’s rate-cut, sustained selling by Foreign Institutional Investors, a weak rupee, trade deficit and other such factors. Here’s a look at some factors which contributed to the decline witnessed by Indian markets today:

US Federal Reserve’s Rate Cut

The US Federal Reserve reduced its benchmark interest rate by 25 basis points to 4.25 from 4.5 per cent on Wednesday, December 18. The Fed also shared its rate reduction outlook, projecting only two more rate cuts of a quarter-percentage point by the end of 2025. US markets responded negatively to the outlook and the rate cut as they responded to a near 3 per cent decline in the S&P 500 and the Nasdaq. Market analyst Nilesh Jain of Centum Broking told Outlook Money that Indian markets are taking the US Fed’s commentary negatively and the new outlook and rate cut are the primary reasons behind the market crash seen today.

“The major factor is the US Markets which have seen a crash of over 2.5%. This is a repercussion we are witnessing across global markets. Even the Asian and European markets are down because of the US Fed rate cut, guidance and outlook. The market is taking the commentary negatively which is the primary reason behind the market crash today,” Nilesh Jain told Outlook Money.

Sustained Selling By Foreign Institutional Investors

Foreign Institutional Investors (FIIs) have remained net sellers of Indian equities for the past three sessions since December 16. The sustained selling has also contributed to the decline witnessed in the Indian markets today. FIIs made net sales of Rs 8,005.37 crore in the last three sessions.

Rupee At Record Low

Following the US Fed’s rate cut the US Dollar jumped to a two-year high after the US Fed's remarks. On the other hand, the Indian rupee hit a historic low of Rs 85.3 per dollar on Thursday, which further dampened market sentiment. A weak rupee results in lower investments from foreign investors as a weak rupee reduces their profits when they convert their gains into their home currencies. 

Uncertainty Over Earnings Recovery

The June quarter and the September quarter of FY 2024-25 have been weak ones for India Inc. As the December quarter approaches its end, it remains to be seen whether Indian companies will achieve a decent recovery. Jain told Outlook Money that while a recovery is anticipated in the December quarter of the ongoing fiscal it is likely to be a moderate one.

“Q2 was subdued and there was not much action. In Q3 we are expecting a recovery and better numbers. It will be a moderate kind of recovery and not a significant recovery,” Jain told Outlook Money.

Macroeconomic Factors

Macroeconomic factors such as a widening trade deficit have also impacted market sentiment. Earlier, in November, India's trade deficit grew to an all-time high of $37.84 billion from $27.1 billion in October.