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The Indian stock market experienced a significant downturn on December 17th, 2024, with the Sensex plummeting over 1000 points and the Nifty falling below the 24,400 mark. This sharp decline, representing a drop of over 1 percent, reflects a confluence of global and domestic factors that have triggered widespread investor caution. The primary catalyst appears to be the anticipation of the US Federal Reserve's interest rate decision scheduled for Wednesday. While a 25 basis points rate cut is largely expected, the market's focus has shifted to the subsequent commentary from Fed Chair Jerome Powell, with any deviation from a dovish outlook potentially triggering further negative market reactions. This uncertainty, coupled with existing global economic anxieties, fluctuations in commodity prices, and concerns over interest rate hikes by other central banks, has created a climate of heightened risk aversion among investors.
Adding to the domestic pressures is the weakening Indian rupee, which hit a record low of 84.92 against the US dollar. This depreciation is largely attributed to foreign fund outflows and the overall weakness in domestic equities. The record trade deficit for November, particularly fueled by increased gold imports, further exacerbated the downward pressure on the rupee. The absence of fresh buying by Foreign Institutional Investors (FIIs), who offloaded equities worth Rs 279 crore on Monday, further dampened market sentiment. This sustained selling pressure, coupled with heavy selling in blue-chip stocks such as Reliance Industries, Bharti Airtel, Nestle, Larsen & Toubro, Bajaj Finserv, HDFC Bank, JSW Steel, and Titan, contributed significantly to the market's overall decline. The selling in these index heavyweights exerted a substantial drag on the broader market indices.
Another factor contributing to the cautious sentiment is the upcoming Bank of Japan (BOJ) policy meeting scheduled for December 18-19. The BOJ is expected to deliberate on raising short-term interest rates, a decision that will follow the Fed's rate announcement. The anticipated divergence in monetary policy between the US and Japan adds to the overall uncertainty, as the market grapples with the implications of potentially contrasting economic strategies from two major global economies. Concerns have been raised by a senior Japanese government official regarding the potential negative impact of raising rates before the economy has sufficiently recovered. This underscores the complex interplay of global economic factors that are impacting investor confidence and contributing to the volatility in the Indian stock market.
The global market landscape also played a significant role in the Indian market's downturn. While Wall Street closed mostly higher on Monday, other Asian markets such as Seoul, Shanghai, and Hong Kong experienced declines, reflecting a broader trend of global market uncertainty. This interconnectedness highlights the vulnerability of emerging markets like India to external shocks and underscores the importance of considering global economic conditions when assessing domestic market performance. Experts predict that the market is likely to remain volatile in the near term, with the cautious sentiment expected to persist until clarity emerges regarding the US Fed and Bank of Japan's interest rate decisions. The ongoing combination of global uncertainties and persistent domestic challenges, including the weak rupee and continued FII outflows, points towards a continuation of market instability in the foreseeable future. Investors are advised to exercise caution and seek professional advice before making any investment decisions during this period of market volatility.
The situation highlights the intricate relationship between domestic and global economic factors. The Indian market's performance is not solely determined by domestic events; it is significantly influenced by global trends, particularly those emanating from major economies like the US and Japan. The interconnectedness of global financial markets is undeniable, and this interconnectedness necessitates a holistic understanding of global economic dynamics when assessing the performance of individual markets. The current situation serves as a reminder of the inherent risks associated with stock market investments and the importance of diversification and risk management strategies. Investors need to carefully consider their risk tolerance and investment horizons before making any investment decisions. It is crucial to stay informed about market developments and to seek professional financial advice when making significant investment choices.
Source: Stock Market Crash: Why Sensex Fell Over 1,000 Points, Nifty Below 24,400 Today?