Sensex crashes by 1,200 points!
what's going wrong?
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Why is Sensex crashing?
So, if you’ve been watching the stock market today, you probably noticed the huge drop, with Sensex plummeting nearly 1,200 points and Nifty sliding down to the 23,870 mark. The market capitalization of BSE-listed companies dropped by ₹6 lakh crore in just a few minutes, leaving investors on edge. But what exactly is going on? Here are the top 5 reasons behind today’s market plunge:
1. The US Federal Reserve's surprising move
Let’s start with what’s happening across the world. The US Federal Reserve made a key move this week, trimming its interest rate by 25 basis points, bringing it to 4.25-4.50%. This was in line with market expectations, so on the surface, it seemed like good news. However, the bigger picture was the Fed's outlook on future rate cuts, which surprised everyone. The Fed has now signalled that it plans to only cut rates by another two quarter-point reductions by the end of 2025. That’s a lot fewer cuts than the market was hoping for - some were expecting three or four rate cuts. This slower pace of rate cuts triggered a global sell-off, including a sharp decline in US markets like the S&P 500 and Nasdaq. And as US markets fell, Asian markets, including ours, followed suit, dragging the Indian stock market down.
2. Foreign Institutional Investors Are Pulling Back
Foreign Institutional Investors (FIIs) have been a major force in the Indian stock market in recent years. But lately, they’ve been pulling back. Over the past three sessions, FIIs have sold Indian equities worth over ₹8,000 crore, and that’s definitely weighing on market sentiment.
Why the sell-off?
Well, it’s a combination of things. The US dollar is strengthening, bond yields are on the rise, and with fewer rate cuts expected by the US Fed, investors are looking for safer bets elsewhere. While domestic institutional investors (DIIs) have been buying and trying to stabilize the market, it’s tough to counteract the big sell-offs from foreign investors. This is a classic example of how global factors can ripple through and affect our markets.
3. The Rupee Hits a New Low
Now, here’s something that’s causing even more unease: the Indian rupee has hit a record low of ₹85.3 per dollar. A weak rupee means a lot of things for the market. First, it makes India less attractive to foreign investors because when they convert their returns back to their home currencies, they lose out due to the devaluation. It also signals potential inflationary pressures. As the rupee weakens, the cost of imported goods and raw materials rises, leading to higher inflation. And when inflation goes up, the Reserve Bank of India (RBI) might tighten monetary policy, which can hurt market growth. Simply put, a weak rupee puts pressure on both foreign investments and domestic inflation, creating a perfect storm for the stock market.
4. Worsening Macroeconomic Conditions
On top of everything else, India’s broader economic situation is showing some signs of strain. For instance, India’s trade deficit - basically, the gap between imports and exports - hit a record $37.84 billion in November. This is much higher than expected and indicates that we’re importing a lot more than we’re exporting. This imbalance is worrying because it puts pressure on our currency and raises concerns about the country’s economic stability.
Furthermore, India’s GDP growth has been slowing down, with the latest print for Q2 showing the lowest growth in nearly two years. A slowdown in economic growth combined with a massive trade deficit creates a cloudy outlook for the economy, and that’s dragging the market down.
5. Uncertainty Over Corporate Earnings
Finally, let’s talk about earnings, which is always a big factor when it comes to stock market performance. Indian corporates have faced some weak earnings in the first two quarters of the year, and now all eyes are on the December quarter (Q3) results. There’s some hope for a recovery, but experts are saying that the real bounce might not happen until Q4.
While government spending and a better crop season are expected to help boost earnings later, there’s no sign of a strong recovery just yet. If earnings don’t show a sharp rebound soon, it could mean more turbulence for the stock market in the near term. Without solid earnings growth, stock prices may remain under pressure, making investors nervous.
So, that’s it from me today!
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