Nifty 50, Sensex Drops Over 1%: Why Market Is Down Today?

On December 13, 2024, the Indian stock market witnessed a dramatic selloff, causing both the Nifty 50 and Sensex to decline by more than 1%. Midcap and smallcap indices were hit even harder, with both falling nearly 2% during intraday trading.

The Sensex plummeted over 1,200 points, or 1.5%, closing at 80,082.82, while the Nifty 50 dropped nearly 370 points, or 1.5%, to settle at 24,180.80. Key stocks such as Reliance Industries, HDFC Bank, and SBI experienced significant losses, all dropping over 1% each.

The market capitalisation of BSE-listed companies fell to ₹451 lakh crore from ₹458 lakh crore in the previous session, making investors poorer by about ₹7 lakh crore in a single day. The broader market sentiment was negative, and this widespread selling reflected global economic concerns.

Why the Indian Stock Market is Down Today: Key Factors

Several factors have contributed to the sharp drop in the Indian stock market, driven by both global economic trends and investor sentiment. Experts have pointed to 5 main reasons:

• Elevated US Dollar and Rising Bond Yields

One of the primary reasons behind the selloff was the rise in the US dollar and bond yields, which caused weakness in global markets. On December 13, major Asian markets suffered losses as the US dollar surged, negatively affecting investor risk appetite. Additionally, US Treasury yields saw sharp increases, especially in longer-dated bonds, which resulted in foreign capital outflows from emerging markets, including India. As bond yields increased, emerging market assets, such as Indian equities, became less attractive.

• Concerns Over Persistent Inflation

Inflation fears returned to the forefront, especially in the US, which saw its consumer price index (CPI) rise by 2.7% in November, the highest increase in 7 months. This slight rise from 2.6% in October caused concerns that inflation is still a significant issue, which could prevent the US Federal Reserve from aggressively reducing interest rates. In addition, the US producer price index (PPI) rose by 0.4% in November, the largest increase since June, signalling inflationary pressures that could persist into the coming months.

While inflation in India has moderated, with CPI falling to 5.48% in November from a 14-month high of 6.21% in October, the global inflation concerns have caused jitters in the markets.

• Focus on the US Federal Reserve Meeting

Investors are also cautious ahead of the US Federal Reserve’s upcoming Federal Open Market Committee (FOMC) meeting, scheduled for December 17-18. The market has largely priced in a 25-basis-point rate cut by the Fed. However, beyond the rate cut, investors are closely watching the commentary from Fed Chair Jerome Powell regarding the US economy’s growth-inflation trajectory. Any hints about future rate cuts or the Fed’s stance on inflation could significantly influence market behaviour.

Experts have noted that hopes for a deep rate-cut cycle have been fading. Furthermore, geopolitical events, such as US President Donald Trump’s decisions on tariffs, could also impact the Fed’s future actions, making the market even more uncertain.

• Foreign Capital Outflows

After initially buying Indian equities at the beginning of December, foreign institutional investors (FIIs) began selling again. Over the last 2 trading sessions, FIIs have withdrawn more than ₹4,500 crore from Indian equities. The selling is partly attributed to rising US dollar strength, higher bond yields, and the uncertain outlook on US Federal Reserve rate cuts. Another reason is the stretched valuation of the Indian stock market, which has become increasingly expensive for foreign investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.