Stock Market Meltdown: What’s Behind the SENSEX Plunge and NIFTY50 Dip Below 24,000?

A Bleak Week for Indian Equities

The Indian equity market is grappling with a massive selloff, marking its fourth consecutive session of losses. On December 19, 2024, the SENSEX dropped over 1,000 points, while the NIFTY50 slid below the critical 24,000 mark. These declines have wiped out investor wealth to the tune of ₹8 lakh crore, sparking widespread concern. Let’s delve into the underlying reasons for this turmoil.

1. Revised Outlook from the US Federal Reserve

The recent policy announcement from the US Federal Reserve triggered a wave of uncertainty. While the Fed’s decision to cut interest rates by 25 basis points was expected, its future guidance spooked investors.

• The Fed projected that rates would decline to 3.9% by the end of 2025, a revision from the earlier forecast of 3.4%.

• This suggests fewer rate cuts in 2025—only two, compared to the anticipated three or four.

The cautious outlook dampened investor sentiment globally, leading to an equity selloff.

2. Global Market Turmoil

Indian markets mirrored the steep declines in global indices after the Fed’s announcement. Wall Street witnessed a sharp downturn:

• Dow Jones fell 2.6% (1,123 points).

• Nasdaq dropped 3.6% (716 points).

• S&P 500 tumbled 3% (178 points).

This downturn rippled across Asian markets, with key indices like Japan’s Nikkei, China’s CSI 300, and Hong Kong’s Hang Seng falling significantly. The bearish global sentiment weighed heavily on Indian equities.

3. Indian Rupee Hits a Record Low

The Indian rupee hit an all-time low of 85.3 against the US dollar, adding further pressure to the domestic markets.

• A weaker rupee discourages foreign investments in Indian equities, as returns diminish when converted back to stronger currencies.

• The depreciation also reduces the purchasing power of Indian companies and investors, making dollar-based investments more attractive.

This currency weakness created additional headwinds for the equity market.

4. Foreign Institutional Investors (FIIs) Exit Indian Markets

Foreign institutional investors (FIIs) have been offloading Indian equities at an alarming pace:

• FIIs sold over ₹8,000 crore worth of equities since Monday.

• On December 18 alone, FIIs sold equities worth ₹1,316.81 crore.

The strengthening US dollar and rising global uncertainties have made Indian markets less appealing, prompting FIIs to pull out funds. This consistent selling pressure has significantly contributed to the market downturn.

5. Uncertainty Looms Over Q3 Earnings

Investors are also cautious about the upcoming third-quarter earnings results, following disappointing data from the previous quarter.

• GDP growth slowed to 5.4% in Q2 FY25, below market expectations.

• Earnings from several major companies underperformed, further dampening investor sentiment.

As the December quarter ends, market participants are bracing for another potential earnings shock, intensifying the selloff.

Impact on Key Sectors and Stocks

The selloff has been broad-based, with most sectoral indices trading in the red. Among the hardest-hit were:

• NIFTY Bank, IT, and Metal indices, which led the declines.

• Heavyweights like Asian Paints, Bajaj Finance, and JSW Steel also recorded significant losses.

The NIFTY Pharma index was the sole exception, trading higher amid the market gloom.

Investor Takeaways: Weathering the Storm

This week’s market slump highlights the interconnectedness of global and domestic factors in driving equity performance. While the current downturn might unsettle investors, it’s crucial to:

• Stay informed about macroeconomic developments.

• Diversify portfolios to mitigate risks.

• Focus on long-term investment goals instead of reacting to short-term volatility.

What Lies Ahead?

As the year winds down, uncertainty remains a dominant theme in the markets. With key factors like global monetary policy, currency movements, and corporate earnings in flux, volatility is expected to persist. Investors are advised to exercise caution, monitor developments closely, and consult financial experts before making significant investment decisions.

The road ahead may be challenging, but informed and disciplined investing can help navigate these turbulent times.