The Indian stock market witnessed a significant downturn this month, leaving investors concerned and market analysts buzzing with questions. A combination of global economic trends, domestic challenges, and sector-specific issues contributed to this decline.
In this analysis, we’ll delve into the key factors contributing to the overall market decline, examining both global and domestic influences.
- Reduced Expectations of U.S. Federal Reserve Rate Cuts: A robust U.S. jobs report has led to anticipations of fewer rate cuts by the Federal Reserve, diminishing the appeal of emerging markets like India for foreign investors.
- Rising U.S. Treasury Yields: The 10-year U.S. Treasury yield reached a 14-month high, prompting investors to favor U.S. bonds over Indian equities, resulting in capital outflows.
- Foreign Institutional Investor (FII) Selling: Concerns over declining corporate profits, sluggish economic growth, a historically weak rupee, high US interest rates, trade tensions, and competition from the US market have led foreign investors to sell almost $2 billion of Indian equities in the first week of 2025.
- Depreciation of the Indian Rupee: The rupee fell to an all-time low of 86.5825 against the U.S. dollar, its largest single-day decline in nearly two years, driven by limited central bank intervention and global economic pressures. A rising dollar can weaken the Indian rupee, making imports more expensive and potentially impacting corporate earnings.
- Global Economic Uncertainties: Uncertainties surrounding U.S. policies and potential protectionist measures have created volatility in international markets, affecting investor sentiment in India.
- Rising Crude Oil Prices: Global crude oil prices surged, posing inflationary risks for oil-importing countries like India, which dampened market sentiment.
- Concerns about Economic Growth: Worries about India’s economic growth trajectory, potentially due to global slowdown or domestic issues, can dampen investor sentiment.
The Indian stock market’s decline this week is likely due to a combination of global and domestic factors. Key reasons include rising US bond yields and a strong dollar, leading to FII selling and concerns about capital outflows. Fears of a global economic slowdown, rising crude oil prices impacting India’s import costs, and uncertainty surrounding US Federal Reserve policies also play a role. Domestically, concerns about India’s economic growth, the ongoing Q3 earnings season, and potentially domestic political or policy uncertainty contribute to the market downturn. Technical factors like profit-taking also play a part.
Reference: Data upto 13 Jan 2025, ViaWeb, Reuters
