Stock market crash: Sensex cracks 1,200 points; why is Indian stock market falling today? Explained with 5 factors

Stock market crash: The Indian stock market suffered significant losses in early trade on Thursday, December 19, with benchmark Sensex crashing almost 1,200 points and Nifty nosediving back to 23,870 level after the US Fed signalled the pace of rate cuts could be slower going ahead.

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Sensex opened at 79,029.03 against its previous close of 80,182.20 and dropped 1,162 points to the day’s low of 79,020.08. Similarly, Nifty 50 opened at 23,877.15 against its previous close of 24,198.85 and dropped 329 points to 23,870.30.

The overall market capitalisation of the BSE-listed firms dropped to nearly ₹446.5 lakh crore from ₹452.6 lakh crore in the previous session, causing investors to lose ₹6 lakh crore in just a few minutes of trade. Over the last four days of losses, investors have lost nearly ₹13 lakh crore, as the overall market capitalisation of BSE-listed firms stood at ₹459.4 lakh crore on Friday, December 13.

Why is the Indian stock market falling today?

Let’s take a look at five key factors that are driving the Indian stock market down today:

1. The US Fed factor

Despite the US Federal Reserve trimming its benchmark interest rate by 25 basis points to 4.25-4.50 per cent on December 18—in line with market expectations—its rate cut outlook dampened market sentiment worldwide. The Fed revised its rate reduction outlook, projecting only two more rate cuts of a quarter-percentage point by the end of 2025 as against the market’s expectations of three or four rate cuts.

Major Asian markets plummeted following a 3 per cent fall in the S&P 500 and Nasdaq, and the US dollar jumped to nearly a two-year high after the US Fed’s remarks.

“Even though the 25 bps rate cut was in tune with the market’s expectations, the indication of only two 25 bp cuts each in 2025 against the market expectation of three or even four cuts spooked the market, resulting in a sharp sell-off on Wall Street,” V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed.

2. Foreign capital outflows

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The sustained selling of Indian equities by foreign institutional investors (FIIs) has been a key reason behind the recent downturn in the Indian stock market.

FIIs have sold off Indian equities worth over ₹8,000 crore in the last three sessions amid a strengthening dollar, rising bond yields and the prospects of fewer rate cuts by the US Fed next year.

Foreign capital outflows have been weighing on market sentiment, even as buying by domestic institutional investors (DIIs) cushions the fall in the domestic market.

3. Rupee at record low

The Indian rupee hit a historic low of 85.3 per dollar on Thursday, damaging market sentiment.

A weak rupee discourages foreign investors from investing in the Indian market. It reduces their gains when they convert them back into their home currencies, leading to foreign capital outflows and further pressuring the markets.

A weak rupee also simply means higher inflation, as imported goods and raw materials become costlier. And higher inflation means tighter monetary policies, which is again a negative for the market.

4. Macroeconomic headwinds

Fresh concerns have emerged over India’s deteriorating macroeconomic picture, affecting market sentiment.

The country’s trade deficit widened to an all-time high in November.

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As Mint reported earlier, 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.

Moreover, the overall economic growth is also showing signs of losing steam. India’s Q2 GDP prints came to the lowest in nearly two years and showed growth slowing for the third consecutive quarter.

5. Uncertainty over earnings recovery

After weak Q1 and Q2 earnings of Indian corporates, all eyes are on the December quarter (Q3) earnings. While experts expect earnings recovery, they hint that a decent recovery could be expected only from Q4.

“We are yet to see data sets that suggest we are seeing a revival in earnings. However, the expectation is that driven by government capital expenditure and other expenditures, a better crop season may lead to a recovery in earnings in Q3 and Q4,” Santosh Kumar Singh, Fund Manager at Motilal Oswal Mutual Fund, told Mint.

“Unless we see a sharp recovery in earnings, which is not visible yet, we may see CY25 be muted from a stock price performance perspective. The revival in earnings growth would be a key trigger for the market,” Singh said.

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