Stock Market Crash: The Indian stock market suffered a major fall on 20 December 2024, when the Sensex fell over 1,200 points to register losses for the fifth consecutive day. This sharp fall was due to several global and domestic factors that created a negative environment in the market. The Sensex opened at 79,335.48, but dropped to 77,874.59, and finally closed at 78,041.59, down 1.49%. The Nifty 50 also fell by a similar margin and closed 1.52% lower at 23,587.50. Mid and small-cap stocks fell even more, with the BSE Midcap and Smallcap indices falling over 2%, respectively. The total market capitalisation of BSE-listed companies fell by ₹9 lakh crore to ₹441 lakh crore in a day, causing huge losses to investors.

This decline was caused by several important reasons:

US Fed's interest rate stance

The monetary policy of the US Federal Reserve impacted the market sentiment. While the Fed reduced its interest rate by 25 basis points and brought it down to 4.25-4.50%, it indicated a slow pace of interest rate reduction in the future. The market had expected three or four rate cuts, but the Fed forecast only two and a further 0.25% cuts by 2025, dashing investor expectations. This slow rate cutting stance had a negative impact not only on the US but also on global markets including India.

Foreign investors sell off

The continuous selling of Indian stocks by foreign institutional investors (FIIs) is also a major reason for this decline. FIIs have sold more than ₹ 12,000 crore in the last few days. The reason for this is the strength of the US dollar, rising bond yields and the possibility of less rate cuts from the US Fed. Although domestic institutional investors (DIIs) are supporting to some extent, the selling by FIIs has put the market under pressure.

Weak Rupee

The Indian rupee hit a historic low of 85.34 per dollar on December 20, further hurting market sentiment. A weak rupee reduces the attractiveness for foreign investors as it leads to losses when they withdraw their investments. Moreover, a weak rupee fuels inflation as the prices of imported goods and raw materials rise, increasing the possibility of tighter monetary policy, which is negative for the market.

Economic concerns

India's economy is also facing many challenges, which are affecting market confidence. The trade deficit reached a record ₹37.84 billion in November 2024, raising concerns about the economic outlook. Apart from this, India's GDP growth has also slowed down, which was found to be slow for the third consecutive quarter.

Uncertainty of weak earnings recovery

Weak first and second quarter earnings of Indian companies have also made investors uncertain. Although some experts believe that the profits of companies may improve, they expect this improvement to be seen only in the fourth quarter.

It is worth noting that due to all these factors, there was a sharp decline in the Indian stock market, causing huge losses to the investors and the market capitalization of Indian companies came down to ₹ 441 lakh crore.