Are you wondering why the Indian stock market has been facing such turbulence? On Wednesday, November 13, the Sensex dropped 984.23 points, settling at 77,690.95, while the Nifty ended 324.4 points lower at 23,559.05. This marked the fifth consecutive session of losses.
Both indices are over 10% lower than their record highs, last seen in September. They have shed almost 4% of their value in just these five sessions.
But what’s driving this significant downturn? Let’s examine the factors that have pushed the market lower, examining the challenges both domestically and globally.
Rising Dollar Index
Another factor impacting the market is the US dollar index, which has surged by 1.8% this month, hitting 105.98—the highest level since July. This rise in the dollar puts pressure on emerging market currencies, including the Indian rupee, as it reduces their relative value.
The strengthened dollar results from several geopolitical and economic developments, including Donald Trump’s victory in the U.S. election. The market is responding to expectations of tighter U.S. policies and tariffs that could influence global trade.
According to Nomura India, the anticipation of broad-based tariffs under Trump’s administration will likely increase U.S. inflation. This scenario could slow down the Fed’s rate cuts in the future, making U.S. assets more attractive to investors. Source: Livemint
Weakening Rupee Amid Persistent FPI Outflows
One key factor is the rupee’s weakening against the US dollar. On Wednesday, the rupee dipped by 1 paisa, hitting a record low of 84.40 in early trading. Persistent foreign portfolio investor (FPI) outflows continue to weigh on the currency, reflecting a broader shift in foreign investments.
In November alone, FPIs sold off ₹23,911 crore worth of Indian equities, adding to October’s significant outflows of ₹1.14 lakh crore. Amid concerns about valuation and slower earnings growth in India, FPIs seek out markets with higher returns, including China, which recently introduced stimulus measures that make it more appealing to foreign investors.
High Volatility and Weak Global Trends
The market’s volatility has been heightened due to concerns about global market trends and the potential impact of the U.S. administration’s policies on emerging markets. Additionally, the U.S. 10-year bond yield spiked to 4.42%, signaling higher returns on U.S. assets, which could continue to divert funds from emerging markets like India.
High yields on U.S. bonds typically attract investors away from riskier assets, such as Indian stocks. This adds to the outflow of capital from Indian markets and depresses the value of both the rupee and domestic equities.
Concerns Over Delayed Rate Cuts
While many global central banks, including the U.S. Federal Reserve, have begun reducing interest rates, the Reserve Bank of India (RBI) has maintained a steady rate due to rising inflation concerns. October saw retail inflation increase by 6.21%, breaching the RBI’s tolerance level for the first time in over a year. Rising food prices, partly due to an extended monsoon season that damaged crops, have increased inflation.
Higher inflation makes it challenging for the RBI to lower rates, which is crucial for stimulating economic growth. This is particularly problematic for investors, as they anticipated a rate cut to encourage investment and consumption. Source: Livemint
Sectoral and Stock Performance
The impact of these challenges is evident across all major sectors. Every sectoral index ended in the red, with Nifty Realty seeing the sharpest fall, down 3.2%. Other sectors, including Nifty PSU Bank and Nifty Metal, also experienced significant losses of over 2%.
Only four stocks in the Sensex pack were in the positive territory: Tata Motors, NTPC, Asian Paints, and Infosys. Meanwhile, M&M, Tata Steel, Adani Ports, and JSW Steel were among the top losers. The Nifty Midcap and Smallcap indices performed worse than the benchmarks, each declining by over 2.5%.
Broader Market Impact and Global Trends
The ripple effects of these developments aren’t just confined to Indian markets. Other Asian markets are also experiencing volatility as they brace for potential trade-related impacts from U.S. policies. On Wednesday, Hong Kong’s Hang Seng Index fell by 0.6% to a seven-week low. The CSI 300 index in China showed modest gains of 0.1%, while the Shanghai Composite was mostly flat. These trends underscore the broader challenges facing emerging markets.
In conclusion,
A mix of factors drives the Indian stock market’s recent slump: a strong dollar, rupee depreciation, continued foreign outflows, and concerns around interest rates and inflation. These challenges are compounded by weaker-than-expected corporate earnings and apprehension about U.S. policy changes under Donald Trump’s administration. As markets continue to navigate these complex conditions, investor sentiment remains cautious.
Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
