Sensex & Nifty slide: 5 Key reasons behind the 6-month market slump

The Indian stock market has struggled for thirteen straight sessions. The BSE Sensex closed lower each time, while the Nifty 50 index fell in twelve out of thirteen sessions. Compared to its September 26, 2024, peak, the Nifty 50 lost 3,482 points, dropping from 26,277 to 22,795. The BSE Sensex fell 10,677 points, slipping from 85,978 to 75,311.

Bulls attempted to counter the selling pressure by buying in mid-cap and small-cap stocks last week. However, they lost momentum on Friday. Broader markets experienced heavy intraday volatility. The Nifty Midcap 100 and Small-cap indices fell over 2% from their highs, closing down 1.32% and 0.7%, respectively. The BSE recorded a negative advance-decline ratio of 0.75.

US stock markets also plummeted on Friday. Concerns over President Donald Trump’s policies and their economic impact triggered the decline. The S&P 500 dropped 1.7%, marking its worst day in two months. The Dow Jones lost 748 points (1.7%), while the Nasdaq plunged 2.2%. Weaker-than-expected economic reports fueled the sell-off.

Experts attribute the Indian stock market crash to weak global sentiments. Trump’s tariff policies have heightened fears of a trade war and economic instability. Other factors, including sluggish growth, inflation concerns, and speculation about a London Cash Gold contract default, have also dampened investor sentiment. The US Fed’s hawkish stance and a shift in foreign investments from India to China have added to the pressure.

Key Reasons Behind the Stock Market Crash

1. Sluggish Economic Growth: Businesses worry about federal policies, including spending cuts, tariffs, and geopolitical uncertainty. Chris Williamson of S&P Global Market Intelligence noted that sales have declined due to this unpredictability, while tariff-related price hikes have increased costs.
2. Inflation Concerns: Inflation expectations vary across political groups in the US. While independents and Democrats anticipate higher inflation, Republicans see a slight decline. High mortgage rates and expensive home prices have also weakened home sales, further straining the economy.
3. London Cash Gold Contract Default Buzz: Market analysts suspect a potential default on London’s cash gold contracts. Sugandha Sachdeva of SS WealthStreet highlighted concerns over Trump’s tariff disputes with Europe, which could impact gold prices. In response, banks like JP Morgan and HSBC have moved gold reserves from London to New York, capitalizing on the higher US gold prices. This shift has fueled fears of a contract default in London.
4. Hawkish US Fed: The Federal Open Market Committee (FOMC) signaled reluctance to cut interest rates until inflation stabilizes. This stance strengthened the US dollar, reversing its two-month slump. As a result, foreign institutional investors (FIIs) ramped up their sell-off in Indian markets.
5. China Gains, India Loses: Since September 2024, the Chinese government has introduced several fiscal and monetary stimulus measures to maintain 5% growth. Investors believe these policies will cushion the impact of Trump’s tariffs. Consequently, FIIs have shifted funds from India to China, seeking better returns.

The combination of these factors has kept the Indian stock market under selling pressure. Without a strong rebound in global and domestic sentiment, recovery remains uncertain.