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The Indian stock market experienced a significant downturn today, with benchmark indices Sensex and Nifty50 both plummeting by over 1%. Heavyweights like Reliance Industries and HDFC Bank bore the brunt of the sell-off, triggering widespread losses and wiping out over ₹4 lakh crore in investor wealth. Let’s dive into the top reasons behind today’s market crash.
1. Federal Reserve Meeting Outcome
The markets were weighed down by cautious sentiment ahead of the US Federal Reserve's December 18 meeting. According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, investors are closely watching for indications of a potential rate cut trajectory. While a 25-basis-point rate cut has already been priced in, any deviation from a dovish stance could spell trouble for the markets. Interestingly, the robust US services PMI at 58.5% reflects a strong economy, offering some optimism but adding to rate uncertainty.
2. Strong Dollar and Weak Rupee
The dollar index held steady at 106.83, while the Indian rupee sank to a new all-time low of ₹84.92 against the US dollar. Foreign fund outflows and subdued domestic equity trends intensified the pressure on the rupee. Forex experts suggest that importers’ dollar demand and foreign bank activities could keep the rupee under stress. A weak rupee benefits exporters like IT and pharma sectors but raises import costs, impacting industries reliant on imports.
3. Widening Trade Deficit
India’s trade deficit surged to a staggering $37.8 billion in November, adding fuel to the economic challenges. Analysts predict that the widening deficit will further weaken the rupee, potentially pushing it past ₹85 to the dollar. While exporters may gain from a depreciating rupee, import-heavy businesses will face higher input costs, adding pressure to corporate earnings in the coming quarters.
Conclusion: Markets Under Pressure
Today’s crash highlights the fragile balance in global and domestic markets, as macroeconomic uncertainties weigh heavily on investor sentiment. With over ₹4 lakh crore erased from investor portfolios, staying vigilant about global cues like the Fed’s policy and domestic factors such as the rupee’s performance will be crucial. For investors, this may be a time to evaluate long-term strategies and explore opportunities in resilient sectors like IT and pharma.