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The Indian stock market experienced a significant downturn on February 10th, 2024, marking the fourth consecutive session of selling pressure. The benchmark Sensex plummeted over 600 points, closing at 77,189, while the Nifty 50 dipped below 23,357. This sharp decline resulted in a loss of approximately ₹5 lakh crore in market capitalization for BSE-listed firms. The selloff was widespread, impacting various segments, with mid-cap and small-cap indices experiencing even more pronounced drops, falling up to 2 percent. This dramatic fall raises critical questions about the underlying causes and potential future implications for the Indian economy.
Several key factors contributed to this market crash. Firstly, US President Donald Trump's announcement of new tariffs on steel and aluminum imports, coupled with the threat of reciprocal tariffs on various countries, significantly impacted market sentiment. This uncertainty surrounding international trade policy created a wave of risk aversion among investors, leading to widespread selling. Secondly, despite a previous correction of over 9 percent from its all-time high, the Indian stock market remains highly valued. Experts like V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that valuations, particularly in the broader market, remain on the higher side, emphasizing the need for fundamental triggers such as improved GDP growth and earnings rebound to stabilize the market. Valuation guru Aswath Damodaran even categorized the Indian stock market as the most expensive globally, further fueling investor apprehension.
Weak corporate earnings continue to weigh heavily on market sentiment. While Q3 earnings showed a marginal improvement compared to the previous two quarters, they failed to inspire investor confidence. This persistent underperformance of companies adds to the existing concerns about the overall health of the Indian economy and its potential for future growth. Furthermore, the relentless outflow of foreign capital, particularly from Foreign Institutional Investors (FIIs), significantly contributed to the market downturn. FIIs have offloaded Indian equities worth over ₹10,000 crore in February alone, and nearly ₹2.75 lakh crore since October 2023. This substantial capital flight reflects a lack of confidence in the Indian market and exacerbates the negative trend.
Adding to the pressure, the Indian rupee hit a record low against the US dollar, weakening further to 87.92. This decline, coupled with the existing economic uncertainties, accelerated foreign capital outflows and dampened investor sentiment. A weak rupee signals potential economic instability and further contributes to the overall negative market dynamics. The combination of these factors—Trump's tariff policies, high valuations, weak corporate earnings, significant FII outflow, and a weakening rupee—created a perfect storm, resulting in the substantial market crash. The interconnectedness of these elements underscores the complex challenges facing the Indian economy and the vulnerability of its stock market to both domestic and international forces.
The immediate future for the Indian stock market remains uncertain. While the market may experience short-term fluctuations, the underlying issues of high valuations, weak earnings, and external pressures need to be addressed for sustained recovery. Investors are likely to remain cautious until they see concrete evidence of improvement in these fundamental aspects of the economy. The government's response to these challenges, along with the overall global economic climate, will play a crucial role in shaping the future trajectory of the Indian stock market. Policy measures aimed at boosting investor confidence, promoting domestic growth, and managing foreign capital flows will be essential for stabilizing the market and restoring investor trust. The ongoing situation highlights the inherent risks associated with investing in emerging markets and the importance of carefully considering both domestic and global economic factors before making investment decisions.
Source: Sensex crashes over 600 points; investors lose ₹5 lakh crore; why is Indian stock market falling?