Stock market crash: Why are Sensex, Nifty 50 under pressure for six months? Explained with 5 crucial reasons

Stock market crash: Despite the Nifty 50 index sustaining above the crucial support of 22,750 to 22,800, the Indian stock market has remained under the bears’ grip for the last thirteen straight sessions. The BSE Sensex ended lower for the thirteen sessions, while the Nifty 50 index finished downward in twelve out of thirteen sessions. Compared with the record highs made by the BSE Sensex and the Nifty 50 index on 26th September 2024, the 50-stock index has slipped 3,482 points (from 26,277 to 22,795), whereas the BSE Sensex has fallen 10,677 (from 85,978 to 75,311). However, bulls tried to outsmart bears by initiating buying in the mid-cap and small-cap segments last week, but they finally succumbed to the selling pressure on Friday. Despite initial gains, broader markets witnessed significant intraday volatility on Friday. The Nifty Midcap 100 and the Small-cap indices retreated more than 2% from their day’s highs, ending lower by 1.32% and 0.7%, respectively. Market breadth remained negative, with the BSE recording an advance-decline ratio of 0.75. However, butterflies must fly in the Dalal Street bulls’ stomachs after Friday’s sharp fall in the US stock market.

The US stock market fell sharply Friday after reports showed that worries among consumers and businesses about President Donald Trump’s policies may be hitting the US economy. The S&P 500 sank 1.7 per cent for its worst day in two months. The Dow Jones Industrial Average dropped 748 points or 1.7 per cent, and the Nasdaq composite tumbled 2.2 per cent. The losses accelerated throughout the day following several weaker-than-expected reports on the economy. 

According to stock market experts, the Indian stock market is falling due to weak global market sentiments. Trump’s tariff policy raises fears of a trade war and economic uncertainty, the primary reasons for the weak global cues. However, the persisting tariff rant for around two months has given birth to other concerns, which is enough to hit sentiments. They said that sluggish growth, renewed fear of high inflation, buzz for London cash gold contract default, FOMC meeting minutes suggesting hawkish US Fed on rate cut, etc., are some of the crucial reasons that have remained dominant in the recent stock market crash.

Stock market crash: Top 5 reasons

1] Slowing growth and valuations: Pointing towards India’s growth and valuation concern, Vaibhav Porwal, Co-Founder at Dezerv, said, “Although India’s long-term growth story remains strong, near-term valuation worries and concerns over sluggish corporate earnings have led to profit-booking. India continues to trade at a premium compared to other emerging markets, prompting global investors to reassess their positions. Also, a strong dollar often attracts capital to US markets, which are considered safer and more stable. This could have affected FII outflow from emerging markets like India.”

“India’s premium valuation relative to peers like Indonesia, South Korea, and Taiwan has been a headwind. A consolidation or earnings-driven growth could reset valuations and make Indian equities more attractive,” Vaibhav Porwal of Dezerv said.

2] Inflation concerns: Among US households, though, a divide is evident underneath the surface. Expectations for inflation are rising for political independents and Democrats while falling slightly for Republicans. The sales of previously occupied homes were weaker last month than economists expected. Relatively high mortgage rates and expensive home prices have been hurting sales.

3] Buzz for London Cash Gold contract default: Pointing towards the London Cash Gold contract default buzz, Sugandha Sachdeva, Founder of SS WealthStreet, said, “The tariff dispute between the US and Europe has created uncertainties in global trade, impacting gold prices. There are concerns that the Trump administration may impose tariffs on gold following the recent 25% import tariffs on aluminium and steel. This anticipation has fueled demand in the US, pushing gold prices higher. While gold prices in the US and the UK typically move in tandem, the current price disparity has led major banks to transfer gold from London vaults to New York, capitalizing on higher prices.”

Banks like JP Morgan and HSBC have relocated gold reserves to New York, driving up US inventories since President Trump’s election. Reports indicate that nearly 2% of the Bank of England’s total gold reserves have recently moved out of its vaults.

4] Hawkish US Fed: “In the FOMC meeting minutes released last week, the US Fed dropped a hint that it is not in the mood for the US Fed rate cut until it is fully assured about the US inflation. So, the hawkish US Fed provided fodder to the US dollar, which rebounded from the two-month lows after the release of US Fed meeting minutes. This intensified FIIs’ selling in the Indian stock market,” said Avinash Gorakshkar, Head of Research at Profitmart Securities.

5] Buy China Sell India rant: “Since September 2024, the Chinese Government has taken a slew of fiscal and monetary policy announcements to consolidate the national growth at around 5 per cent in 2024 and 2025. The market believes that such stimulus packages may soften the blow expected from the tariff imposed by Donald Trump. Therefore, FIIs are moving money from India to China for higher returns,” said Seema Srivastava, Senior Research Analyst at SMC Global Securities.

“China has emerged as a major destination of portfolio flows. The Chinese president’s new initiatives with their leading businessmen have kindled hopes of a growth recovery in China. The Chinese stock market responded positively to this. The Hang Seng index (FIIs buy Chinese stocks through the Hong Kong stock market) shot up by 18.7% in a month, in sharp contrast to the 1.55 % decline in the Nifty. Since Chinese stocks are cheap, this ‘Sell India, Buy China’ trade may continue. But this trade has happened in the past, and experience is that it will fizzle out soon since structural problems constrain Chinese economic revival,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.