On December 17, the Indian stock market witnessed a sharp downturn, with both the Sensex and Nifty experiencing heavy losses. The BSE Sensex plunged by over 1,100 points, or 1.30 percent, closing at 80,684.45. Meanwhile, the NSE Nifty tumbled 332.25 points, or 1.35 percent, settling at 24,336. This marked a second consecutive day of losses, and the market ended more than 1 percent lower across both indices. So, what caused this dramatic fall?
Several factors combined to dampen investor sentiment, triggering widespread selling in key sectors. Let’s explore the key reasons behind today’s market crash:
1. US Federal Reserve Jitters
One of the most significant factors influencing the market’s downfall was growing uncertainty surrounding the US Federal Reserve’s interest rate decision. Investors are closely monitoring the upcoming meeting on Wednesday, where the Fed is expected to announce a 25 basis points rate cut. While the rate cut is largely priced in, investors are keenly waiting for Fed Chair Jerome Powell’s comments on future policy direction.
Any hawkish comments—indicating potential rate hikes or a more aggressive stance in 2024—could negatively impact the markets, spooking investors globally. As V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, mentioned, a departure from a dovish stance will likely create volatility, particularly in emerging markets like India.
2. Indian Rupee Hits Record Low
Another key factor that weighed on the market sentiment was the weakening Indian rupee. On December 17, the Indian rupee dropped to a new all-time low of 84.92 against the US dollar, primarily driven by foreign fund outflows and weak domestic equities.
The falling rupee has raised concerns about higher import costs, especially in sectors that rely on imported goods, and it puts pressure on inflation. The rupee’s decline was exacerbated by India’s growing trade deficit, which hit a record high due to increased gold buying. As Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, pointed out, the weakening of the rupee in the Non-Deliverable Forward (NDF) markets added to the downward pressure on Indian equities.
3. Lack of Fresh FII Buying
A significant factor contributing to the market’s fall was the lack of fresh buying by Foreign Institutional Investors (FIIs). On December 16, FIIs sold equities worth Rs 279 crore, adding to the cautious market sentiment.
Foreign investors have been reducing their exposure to Indian equities, possibly due to concerns about global economic growth, the US Fed’s actions, and domestic economic challenges. Ajit Mishra, Senior Vice President of Research at Religare Broking, mentioned that the continued selling by FIIs could further affect market sentiment, particularly since midcap and smallcap indices showed more resilience compared to large-cap stocks.
4. Heavy Selling in Blue-Chip Stocks
On top of these global and domestic concerns, there was heavy selling in blue-chip stocks, particularly in sectors that had previously been market leaders. Stocks like Reliance Industries, Bharti Airtel, Nestle, Larsen & Toubro, Bajaj Finserv, HDFC Bank, JSW Steel, and Titan were among the biggest laggards on the Sensex today.
Investors’ focus on these large-cap stocks, which have often been considered safe havens, may have shifted as global and local uncertainties created an environment ripe for profit-booking and risk-off strategies. When these heavyweight stocks decline, the overall market sentiment takes a hit, as they make up a significant portion of both the Sensex and Nifty.
5. Sectoral Weakness
The sectoral indices also reflected the broader market weakness. Key sectors, including Nifty Bank, Nifty Energy, Nifty Infra, and Nifty IT, all saw declines ranging from 1 to 1.5 percent. The banking sector in particular felt the pinch, likely due to concerns over a higher interest rate environment and potential slowdowns in loan growth. Similarly, the energy and infrastructure sectors are closely tied to global commodity prices, which were under pressure due to a mix of economic uncertainty and geopolitical risks.
6. Weak Global Cues
Global cues were far from encouraging, with many markets facing their own set of challenges. US stock markets were under pressure as investors braced for the Federal Reserve’s decision, while European and Asian markets also reflected signs of weakness. This global risk-off sentiment had a direct impact on the Indian markets, which often move in correlation with global trends.
Conclusion: A Time of Caution and Uncertainty
In conclusion, today’s crash in the Sensex and Nifty was driven by a combination of global and domestic factors. The US Federal Reserve’s interest rate policy, the weakening rupee, lack of fresh FII buying, and selling in blue-chip stocks all contributed to the downfall. As we approach the US Fed’s decision and assess the domestic economic outlook, investors will remain cautious.
The market’s volatility underscores the ongoing global economic uncertainty, and investors must stay alert to shifts in global monetary policies, currency movements, and foreign investor sentiment. With the rupee under pressure, alongside global economic jitters, the coming days could witness more volatility unless key economic signals turn favorable.
