Nifty 50- Why Indian Markets Are Struggling: 5 Key Reasons Explained
Nifty 50– The Indian stock market continues to face pressure, with the Nifty 50 index struggling to hold above the critical support level of 22,750 to 22,800. Despite this, the market has been in a downward trend for the last thirteen sessions, with the BSE Sensex finishing lower in all of those sessions. Similarly, the Nifty 50 index ended twelve out of the last thirteen sessions in negative territory.
From the record highs of September 26, 2024, the Nifty 50 index has fallen by over 3,400 points, while the BSE Sensex has lost more than 10,000 points. While there were some attempts to buy into mid-cap and small-cap stocks last week, these gains were short-lived as the market ultimately succumbed to selling pressure, resulting in a sharp drop on Friday. The broader market indices, including the Nifty Midcap 100 and Small-cap indices, both retreated by more than 2% from their highs, closing lower by 1.32% and 0.7%, respectively.
Global Concerns Impacting Indian Market
The performance of the Indian stock market has been significantly impacted by weak global sentiment. Recently, the US stock market saw a dramatic decline after reports indicated that concerns regarding President Trump’s policies were negatively affecting both businesses and consumer sentiment. The S&P 500 dropped by 1.7%, marking its worst day in two months, while the Dow Jones Industrial Average and Nasdaq also posted significant losses. These losses were further amplified as several reports came in weaker than expected, deepening fears about the future of the US economy. This sharp drop in the US stock market has fueled additional concerns for investors in India, as global economic uncertainties continue to put downward pressure on stock prices.
Top 5 Reasons for the Stock Market Crash
The stock market crash can be attributed to several key factors, ranging from slowing economic growth to global uncertainties. Here are the top 5 reasons driving the downturn in the markets.
1. Slowing Growth and Valuation Concerns
According to Vaibhav Porwal, Co-Founder of Dezerv, India’s long-term growth story remains robust, but near-term concerns about valuations and sluggish corporate earnings are prompting profit-taking in the market. He noted that India continues to trade at a premium compared to other emerging markets, such as Indonesia, South Korea, and Taiwan. As global investors reassess their positions, some have opted to pull back from India, especially as a strong US dollar makes US markets more attractive. “A consolidation or earnings-driven growth could reset valuations and make Indian equities more attractive,” said Porwal.
2. Inflation Fears
Inflation concerns are a key factor weighing on the global economy, particularly in the US. While inflation expectations are rising among political independents and Democrats, they are slightly decreasing for Republicans. The weak sales of previously owned homes, attributed to high mortgage rates and expensive property prices, add to the concerns. This uncertainty surrounding inflation is another element contributing to market instability, especially as investors try to navigate these unpredictable conditions.
3. Gold Market Worries
Another factor adding to the negative sentiment is the uncertainty surrounding the London Cash Gold contract. The ongoing tariff dispute between the US and Europe has contributed to volatility in the gold market, with concerns about potential tariffs being imposed on gold. Reports suggest that the Trump administration could impose tariffs on gold following tariffs on aluminum and steel. This has led to a surge in demand for gold in the US, pushing prices higher. “The tariff dispute has created uncertainties in global trade, impacting gold prices,” said Sugandha Sachdeva, Founder of SS WealthStreet. This situation has caused banks, such as JP Morgan and HSBC, to transfer gold from London vaults to New York, further affecting the global gold market.
4. Hawkish US Federal Reserve
The US Federal Reserve’s stance on interest rates has also contributed to global market instability. In recent minutes from the Federal Open Market Committee (FOMC) meeting, the US Fed hinted that it was not ready to cut interest rates until it was confident that inflation was under control. This hawkish tone has strengthened the US dollar and led to increased foreign institutional investor (FII) selling in Indian stocks. Avinash Gorakshkar, Head of Research at Profitmart Securities, explained, “The hawkish US Fed provided fuel to the US dollar, leading to intensified selling by FIIs in the Indian market.”
5. Shift from India to China
In addition to global factors, there has been a shift in investor focus from India to China. Since September 2024, the Chinese government has introduced several fiscal and monetary policy measures aimed at boosting growth, targeting around 5% growth for 2024 and 2025. As a result, many foreign institutional investors (FIIs) are moving their investments from India to China, where they expect higher returns. “FIIs are shifting money from India to China for better returns, especially as China has introduced stimulus packages that may cushion the impact of Trump’s tariffs,” said Seema Srivastava, Senior Research Analyst at SMC Global Securities.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.
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