Stock market plunges: Sensex drops 1,200 points – 5 key reasons behind today’s crash

The Indian stock market faced a severe setback on Thursday, December 19, as the Sensex plunged nearly 1,200 points in early trade. The Nifty also nosedived, dropping to 23,870. This crash followed the US Federal Reserve’s signals that future rate cuts would be slower than expected.

The Sensex opened at 79,029.03, down from the previous close of 80,182.20, and slid further to 79,020.08. Similarly, the Nifty opened at 23,877.15, down from 24,198.85, and fell to 23,870.30. The market capitalization of BSE-listed companies shrank to ₹446.5 lakh crore, a decline of ₹6 lakh crore within minutes. In just four days, investors have lost nearly ₹13 lakh crore.

Why is the Stock Market Falling?

Several factors are contributing to the sharp decline in the Indian stock market:

1. US Fed’s Rate Cut Outlook
   Despite a 25 basis point rate cut by the US Federal Reserve, its outlook dampened market sentiment. The Fed signaled only two more rate cuts by 2025, a sharp contrast to the market’s expectations of three or four. This triggered a global sell-off, including a 3% drop in the S&P 500 and Nasdaq, and the US dollar surged to a two-year high. The news spooked investors, leading to a sell-off worldwide.
2. Foreign Capital Outflow
   Foreign institutional investors (FIIs) have been consistently selling Indian equities, with over ₹8,000 crore worth of stocks sold in the past three days. The strengthening US dollar and rising bond yields, combined with fewer anticipated rate cuts by the US Fed, have led to these outflows, putting additional pressure on the market.
3. Weak Indian Rupee
   The Indian rupee hit a record low of 85.3 per dollar, worsening market sentiment. A weak rupee discourages foreign investment, as it reduces returns when converted into home currencies. This contributes to capital outflows. Additionally, a weaker rupee drives inflation, raising concerns over higher import costs and tightening monetary policies, which negatively affect the market.

As these factors compound, the Indian stock market faces a challenging path ahead.