The Indian stock market has been under pressure for three consecutive sessions. On Wednesday, December 18, both the Sensex and Nifty declined by 0.80 percent during intraday trade.
The selling was not confined to blue chips only as the BSE Midcap and Smallcap indices declined by a percent. Considering today's closing of 80,182.20, the Sensex has crashed 1,951 points in three days.
The overall market capitalisation of BSE-listed firms has dropped to nearly ₹453 lakh crore from about ₹459 lakh crore on Friday, December 13, making investors poorer by about ₹6 lakh crore in three sessions.
Experts point to the following five reasons behind the last three day's market downturn:
1. Caution ahead of the US Fed policy outcome: Amid sticky inflation and growing concerns about slowing growth, all eyes are on today's US Federal Reserve policy decision. The two-day policy meeting of the US Federal Open Market Committee (FOMC) started on December 17, and its outcome is due tonight
Experts say while a 25 bps rate cut is widely expected, the updated economic projections and the US Federal Reserve's dot plot are the key things to watch. They will shape expectations for the interest rate trajectory of the world's most powerful central bank through 2025 and 2026.
2. Rupee's weakness: The Indian rupee plunged to a record low of 84.95 per dollar on Wednesday, weighing on domestic market sentiment. Due to a strengthening dollar, experts expect the rupee to remain weak for some time, going beyond the 85 per dollar mark.
As weak currency accelerates foreign capital outflow, weakness in the rupee may keep the market sentiment low.
3. Foreign capital outflow: Foreign portfolio investors (FPIs) have resumed selling Indian equities this week amid rising dollar and US bond yields. FPIs sold Indian equities worth ₹6,409.86 crore on December 17 and ₹278.70 crore on December 16. On a monthly scale, however, they are still net buyers this month.
Experts note that FPIs typically sell Indian stocks toward the end of the year ahead of the holiday season. This year, the dollar's appreciation, uncertainty around the US Fed's interest rate trajectory, and Donald Trump's tariff policies have accelerated the pace of capital outflows.
4. Deep losses for banking stocks: Shares of some banking heavyweights have been among the top drags on the benchmark indices in the last three days. On Wednesday, HDFC Bank and ICICI Bank were the two top drags on the Nifty 50 index. The Nifty Bank index has lost almost 3 per cent in the last three days.
5. Concerns over deteriorating macro: India's trade deficit widened to an all-time high in November, primarily due to high gold imports. 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.
After the Q2 GDP prints came to the lowest in nearly two years and showed growth slowing for the third consecutive quarter, the higher trade deficit numbers have come as a fresh blow to sentiment.
(By arrangement with livemint.com)
