The Indian stock market has witnessed a significant decline in the last four sessions, with benchmark indices such as the Nifty 50 and the BSE Sensex falling significantly. In these tumultuous times, many investors are wondering: Why is the Indian stock market declining for four consecutive sessions? According to experts, five key factors are responsible for this decline, including external and domestic market influences.
In this article, we will analyze these key reasons, discuss experts’ views, and highlight what may lie ahead for the market. Let’s take a look at five primary reasons contributing to this decline.
Why is the Indian stock market declining:
(1)US Presidential Elections and Global Uncertainty
One of the key reasons for the current decline in the Indian stock market is the impending US Presidential elections. Historically, US elections impact global markets, and the 2024 elections are no exception. Markets experience volatility due to investors’ uncertainty about future policies and their impact on global trade, foreign investments and geopolitical relations.
According to Mahesh M Ojha, AVP of Research at Hensex Securities, “Foreign institutional investors (FIIs) are selling stocks as they prepare for the potential impact of the US election results. Uncertainty about the election results and its geopolitical impact is leading to lower market participation, which is also putting pressure on Indian markets.”
Apart from the US elections, the global economic slowdown, especially in China and Europe, is also contributing to market volatility, causing FIIs to withdraw their investments from emerging markets like India.
Why is the Indian stock market declining:
(2) Geopolitical tensions in the Middle East
Geopolitical instability has always been a key factor affecting global financial markets. The ongoing tensions in the Middle East, especially due to conflicts involving major oil-producing countries, are casting a shadow on global economic growth prospects. Investors are concerned about how these tensions could impact crude oil prices, supply chains and trade routes, all of which could severely impact economies like India, which are heavily dependent on energy imports. “Geopolitical uncertainty is making investors risk-averse. They are pulling their money out of risky assets, including equities, especially in emerging markets like India,” explains Anshul Jain, head of research at Laxmisree Investment & Securities. The rise in crude oil prices due to these tensions has a direct impact on the cost of goods and services in India, resulting in inflationary pressures. This has further weakened investor sentiment.
Why is the Indian stock market declining:
Disappointing Q2 2024 earnings results
Another major reason for the decline in Indian markets is the below-average Q2 earnings results for FY 2024. Many companies, especially in sectors such as IT, banking and manufacturing, have reported earnings below market expectations, thereby denting investor confidence. Siddhartha Khemka, head of research and wealth management at Motilal Oswal, points out, “Second quarter earnings of many companies, especially the IT and financial sectors, have not met expected numbers. This is leading to selling pressure, especially on large-cap stocks, which is dragging the broader market down.”
When key sectors underperform, a broader market correction often kicks in. In this case, the combination of weak earnings reports and slowing economic growth indicators is pulling down the overall market sentiment.
Why is the Indian stock market declining:
Maharashtra state assembly elections and political uncertainty
The domestic political scenario is another factor influencing market behavior. The upcoming Maharashtra state assembly elections are being closely watched, and uncertainty over the results is making investors cautious. State-level elections in India can have an impact on national politics and economic policies, especially in a key state like Maharashtra, which is the financial capital of India.
According to Mahesh M Ojha of Hensex Securities, “Domestic institutional investors (DIIs) are waiting for the election results before making big moves. The lack of buying activity from DIIs is leading to selling pressure as there is no response to the FII selling pressure.”
Political uncertainty generally reduces liquidity in the market, as investors prefer to wait for clarity on future governance and policy directions. This cautious approach is expected to continue until the election results become clear.
Why is the Indian stock market declining:
Weakness in Indian National Rupee (INR)
Finally, the falling value of the Indian National Rupee (INR) against the US dollar has further added to the market woes. A weaker rupee makes imports more expensive, which has a direct impact on inflation and corporate profits, especially for industries dependent on imported raw materials. Also, a weaker currency reduces the purchasing power of FIIs, leading to further outflows of capital.
“The fall in INR is raising apprehensions about India’s fiscal deficit, especially in the wake of rising crude oil prices. This is one of the main reasons for the sell-off on Dalal Street,” says Ojha. A weaker rupee also impacts foreign investment, as FIIs stay away from markets where currency devaluation threatens their returns.
Why is the Indian stock market declining:
Performance of Nifty 50 and Sensex
The cumulative effect of these five factors has caused significant disruption in the performance of major stock indices. In the last four sessions, the Nifty 50 index broke its crucial support level of 24,700, falling further to 24,567, while the BSE Sensex hit an intraday low of 80,409. These downward movements have wiped out substantial market capitalisation, leaving investors worried about future trends. Providing a technical outlook, Anshul Jain of Laxmisree Investment & Securities said, “The Nifty 50 index has immediate support at 24,500, but if it breaks below that level, we could see it falling to 24,350 or even 24,300. Investors should keep a close eye on these key support levels.” What’s next? Market Predictions Although the Indian stock market is going through a tough phase, experts believe it could stabilise in the coming weeks. Once the uncertainty around the US elections and geopolitical tensions is dispelled, coupled with better-than-expected Q3 earnings, the market may witness a reversal in sentiment. However, investors are advised to proceed with caution while keeping an eye on external factors such as oil prices and currency movements, which will continue to play a role in shaping the market direction.
Why is the Indian stock market declining: Frequently Asked Questions
Q1: Why is the Indian stock market falling?
Why is the Indian stock market declining due to a combination of global and domestic factors, including the US elections, geopolitical tensions, disappointing Q2 earnings, political uncertainty from state elections, and a weak Indian rupee.
Q2: How much has the Nifty 50 fallen recently?
The Nifty 50 index has broken its crucial support level of 24,700, falling nearly 560 points in four sessions.
Q3: How does a weak rupee affect the stock market?
A weak rupee raises import costs, inflation and fiscal deficits, which lowers corporate profits and reduces foreign investment.
Question 4: What are FIIs and DIIs? FIIs (foreign institutional investors) are foreign entities that invest in Indian markets, while DIIs (domestic institutional investors) are domestic investors like banks and mutual funds.
Question 5: When will the market recover?
The market may recover once global uncertainties like the US elections end and better-than-expected earnings reports are released.
Question 6: Which sectors are most affected by this decline?
Sectors like IT, banking and manufacturing are the worst hit due to weak second quarter results and global economic concerns.
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