Why Market is Falling? Key Factors Behind the Stock Market Decline

Over the past few days, the Indian stock market has been witnessing a significant fall. BSE Sensex has dropped by 5.7% over the past month, with the Nifty down 7% from its all-time high of 26,277.35. This fall has been fueled by a combination of geopolitical tensions, uncertainty surrounding the upcoming U.S. election, and a wave of selling from foreign portfolio investors (FPIs). With mixed earnings reports for the September quarter and elevated stock valuations, the situation is looking grim. Let’s dive into the key factors contributing to this market downturn. In this article, learn why the market is falling.

Why Market is Falling?

• Profit Booking

After a recent strong performance, domestic stocks have seen profit bookings. When market valuations are high, certain triggers can cause corrections, bringing valuations back in line with long-term averages. For example, on October 23, 2024, Zomato shares experienced fluctuations in early trading, dropping almost 5% as investors sold off shares following the release of its Q2FY25 results.

• FII Selling

According to NSDL data, foreign institutional investors (FIIs) sold a record number of shares in October, totalling ₹88,244 crore by October 21. This massive selling was partially offset by strong buying from domestic institutional investors (DIIs).

Here is the FII/FPI & DII trading activity on October 22, 2024-

• Unimpressive Q2 FY25 Earnings

Indian companies’ earnings for the September quarter have been mixed, raising concerns that further downgrades could happen. Experts note that the recovery in corporate earnings in Q2 FY25 does not meet expectations compared to Q1. The IT sector’s earnings in the second quarter were slightly below expectations, impacting the markets. TCS, the largest IT services company, reported a net profit that fell short of expectations. Similarly, Infosys posted a net profit of ₹6,506 crore, missing the estimated ₹6,700 crore.

• Uncertainty Around the U.S. Presidential Election

The close race in the U.S. presidential election is adding to market anxiety. A recent Reuters/Ipsos poll shows that Democratic Vice President Kamala Harris has a slight 3-point lead over Republican Donald Trump as they compete for the November 5 election. The election outcome will impact global market sentiment. While a major change in India’s situation is not expected, it could affect India-U.S. relations in defence, trade, and strategic areas.

• Tensions in the Middle East

Tensions in the Middle East are still high, keeping investors worried. A Reuters report noted that Hezbollah launched rockets at two bases near Tel Aviv and one west of Haifa just before U.S. Secretary of State Antony Blinken visited Israel to discuss a potential ceasefire.

The ongoing conflict in the Middle East creates uncertainty in global markets, including India. These geopolitical tensions contribute to the sharp selling pressure in the Indian stock market.

• Rise in Bond Yields and Strong Dollar

U.S. bond yields and the dollar are close to their highest levels in several months. Higher U.S. bond yields and a stronger dollar typically have a negative effect on the Indian stock market, as they can lead to foreign fund withdrawals and higher import costs, which ultimately hurt corporate profits. The benchmark 10-year Treasury yield increased by 2 basis points to 4.21%, reaching its highest point since late July. Meanwhile, the dollar index stood at 103.96.

The recent rate cut by the US Federal Reserve has boosted investor confidence and positively impacted the stock market. The US Federal Reserve has lowered its key interest rate by 50 basis points to a range of 4.75-5%. This is the first rate cut since 2020, aimed at addressing slowing economic growth and easing inflation in the US. On October 9, 2024, Reserve Bank of India (RBI) Governor Shaktikanta Das announced to keep its key interest rate unchanged, as expected. 

As of 11:30, the Nifty 50 was trading at 24,557.65, up by 0.35%. Today, it has moved within a range of 24,597.1 to 24,378.1. Over the last 5 days, the Nifty 50 has decreased by 1.39%. In the past 1 month, it has given a negative return of 5.19%. 

As of 11:37, the Sensex was trading at 80,537.04, up by 0.39%. Over the last 5 days, the Sensex has decreased by 0.85%. In the past 1 month, it has given a negative return of 5.17%. 

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.