Sensex Crashes by 600 Points, Investors Lose 7 Lakh Crore Rupees: What Was the Matter with the Market Today?
On 8 December, the Sensex saw a drop of 600 points and the investors lost more than ₹7 lakh crore as the markets fell almost 1%. The reasons for the sell-off were weakness of the rupee and FII selling, uncertainty about the US Fed and rising Japanese bond rates, among others.
image for illustrative purpose
The Indian stock market experienced a fierce retreat on Monday, the 8th of December, as the main stock indexes went down almost one percent, and mid-cap plus small-cap stocks suffered an even larger drop. At the end of the day, the market loss for the investors was already more than ₹7 lakh crore, which was a horrible reminder of the speed of the mood change in the market.
The Sensex went down 837 points at one point during the trading day, reaching 84,875.59, while the Nifty 50 dropped to 25,892.25, down 1.12%. At the close of the day, the Sensex had risen a little bit but was nevertheless 610 points lower at 85,102.69, and the Nifty was off 226 points at 25,960.55.
The pain in the broader market was worse:
BSE Midcap Index: down 1.73%
BSE Smallcap Index: down 2.20%
The total market capitalisation went down from ₹471 lakh crore to ₹464 lakh crore, losing an incredible ₹7 lakh crore in only one trading session.
What Caused the Stock Market to Crash Today? The 5 Main Reasons
Market analysts suggest that the medium-term view is still positive, but the sell-off today was caused by a mixture of global factors and local ones. Below are the main causes of the market disturbances:
1. Rupee Slide to All-time Low, Consumer Confidence Shaken
The Indian rupee has lost further ground, now at ₹90.15 per US dollar, due to high crude oil prices and continuing foreign capital outflows.
The rupee’s fall, despite favourable GDP statistics and low inflation, has been a puzzling and anxious issue for the markets. The currency recently depreciated down to ₹90.46, its historical low — caught by uncertainties over the India-US trade deal and FII withdrawals.
2. Traders More Watchful before the US Fed Meeting
The US Federal Reserve’s December 10 rate decision has caught the attention of everyone.
While a 25 bps rate decrease is widely expected, there are concerns about a possibly negative surprise for investors.
The dollar might become stronger if the Fed decides against lowering rates — which would add to the pressure on the already weak rupee and so more FII outflows from India may occur.
3. India-US Trade Tie Uncertainty Keeps on
The two countries have shown signs of negotiation progress but there is still no clear understanding of the final terms or the timing of the trade pact.
A senior State Department official is to visit India this week for delicate negotiations.
External Affairs Minister S. Jaishankar, who spoke at the Hindustan Times Leadership Summit, suggested that a deal might be imminent, but he stressed that India would protect the rights of labourers, farmers and middle-class consumers.
This lack of clarity has one effect on the investors -- they are still apprehensive.
4. Rising Japanese Bond Yields Raise Yen Carry Trade Worries
Japanese government bond/securities yields have rocketed to multi-year highs which is fuelling the fear that Japan may switch over to tightening its monetary policy.
If the yen gets strong, investors are likely to unwind the yen carry trade, a move that is usually associated with outflows from developing markets like India.
Market expert VK Vijayakumar cautions that this reversal could be very impactful in a bad way on the market.
5. FIIs Unrelenting Selling
Since July, foreign institutional investors have been divesting their holdings in Indian equities — selling over ₹1.60 lakh crore in the cash segment.
In merely the first five sessions of December, FIIs offloaded stocks worth ₹10,404 crore.
Although large caps have reasonable valuations and earnings recovery is expected in Q3, FII behaviour remains unpredictable — thus maintaining the market sentiment as fragile.
Experts foresee that the fluctuating behavior will continue until the companies' performance stabilizes and the India-US trade agreement becomes clearer.
In closing
The market crash on 8 December was not the result of one single cause, but rather a mixture of currency pressure, global uncertainties, and foreign outflows. While the long-term fundamentals are still there, the short-term volatility might be higher.
