Sensex Plunges 2,300 Points in 5 Days: What’s Behind the Stock Market Crash?
The Indian stock market has been on a downward spiral for the past five trading sessions, with the Sensex crashing nearly 2,300 points and the Nifty 50 slipping below 23,000. On Tuesday, February 11, the Sensex tumbled 1,018 points (1.32%) to close at 76,293.60, while the Nifty 50 fell 310 points (1.32%) to 23,071.80. The BSE Midcap and Smallcap indices fared even worse, dropping 2.88% and 3.40%, respectively.
This steep decline has wiped out nearly ₹18 lakh crore in investor wealth over the past week, with the market capitalization of BSE-listed companies shrinking from ₹426 lakh crore to ₹408 lakh crore.
Why Is the Stock Market Falling?
According to market experts, five key factors are driving the sell-off:
- Heavy Foreign Investor (FPI) Selling
Foreign investors have been pulling money out of Indian markets since October 2023, primarily due to rising US bond yields and a stronger dollar. The lack of clarity on US Federal Reserve interest rate cuts has further dampened sentiment.
As of February 10, foreign institutional investors (FIIs) have sold ₹12,643 crore worth of Indian stocks in the cash segment. Since October, FPIs have withdrawn over ₹2.75 lakh crore, leading to increased market volatility.
- Disappointing Q3 Earnings
While corporate earnings for the December quarter (Q3 FY24) showed some improvement, they failed to meet investor expectations. Several stocks that had been trading at high valuations are now under pressure due to weaker-than-expected results.
Sectors like consumer staples, automobiles, and building materials have been particularly disappointing, while specialty chemicals have shown signs of recovery.
- Rupee Depreciation
The Indian rupee has weakened significantly against the US dollar, touching 88 per USD earlier this week—down nearly 3% in 2024 alone. A weaker rupee makes India less attractive to foreign investors, fueling more capital outflows.
On Tuesday, speculation of an RBI intervention helped the rupee recover slightly to 86.84 per USD.
- Overstretched Market Valuations
Despite the correction, analysts believe Indian equities remain expensive. Weak earnings expectations and persistent foreign selling have kept investor sentiment low.
Market experts warn that while large-cap valuations have become more reasonable, mid and small-cap stocks are still trading at excessive valuations, making them vulnerable to further declines.
Even Aswath Damodaran, a well-known valuation expert, has called India’s stock market one of the most expensive in the world.
- Trade War Fears
Growing concerns over a global trade war have added to market jitters. The US recently imposed a 25% tariff on steel and aluminum imports, with fears that more tariffs could follow.
Uncertainty around US trade policies is making global investors cautious, leading them to pull funds from emerging markets like India in favor of safer assets.
What’s Next for the Market?
With global uncertainties, rising interest rates, and stretched valuations, experts predict continued volatility in the Indian stock market. Investors are advised to stay cautious, focus on fundamentally strong stocks, and diversify their portfolios to navigate the ongoing turbulence.
News Source : “Information for this article was gathered from a variety of reliable news outlets.”
