Sensex crashes 2,900 points in 4 days, investors lose ₹10 lakh crore— Why is the Indian stock market falling? Explained

Indian stock market remained in a bear grip as the benchmark Sensex crashed another 800 points, or 1%, on Thursday, March 12, while the NSE benchmark Nifty 50 fell to below 23,650, shedding more than 200 points, or 1%.

On Thursday, the 30-share pack ended 829 points, or 1.08%, lower at 76,034.42, while the Nifty 50 closed the day at 23,639, losing 228 points, or 0.95%.

The BSE 150 Midcap index slipped 0.24%, while the BSE 250 Smallcap index declined 0.32%.

The Sensex has crashed 2,884 points, or 3.65%, in just four sessions this week. The Nifty 50 has plunged 811 points, or 3.3%, during the same period despite rising by 1% on Tuesday.

The selloff in the Indian stock market has wiped off investors' wealth by a solid ₹10 lakh crore, as the overall market capitalisation of BSE-listed firms dropped to ₹440 lakh crore from nearly ₹450 lakh crore on Friday. On Thursday alone, investors lost about ₹2 lakh crore.

Why is the stock market falling?

Let's take a look at five key factors behind the recent market crash:

1. Crude oil prices are soaring

Brent crude prices reclaimed the $100 per barrel mark again on Thursday after easing in the last few sessions following signals that the US-Iran war may end soon and following reports of coordinated release of oil reserves by major economies.

However, after two oil tankers were attacked in Iraqi waters, leading to the suspension of oil terminal operations in the country, crude oil prices jumped again.

Thirty-two members of the International Energy Agency (IEA) agreed to release 400 million barrels of oil from its emergency stockpile into the market to address the crude oil shortage due to the war in the Middle East.

The market fears that the prolonged war in the Middle East will be ineffective in meeting the shortage. This will be a huge macroeconomic blow to a country like Indian which imports almost 90% of its crude oil requirements.

According to economists, every $1 increase in the per-barrel price of crude oil raises the country's import bill by roughly ₹16,000 crore.

"External headwinds have pushed the market into a weak zone. With the war continuing to rage with no signs of let-up and Brent crude again bouncing back to $100 levels, the weakness is likely to persist," VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.

2. Rupee's weakness

According to Bloomberg data, the Indian rupee fell 16 paise, or 0.17%, to end at 92.1962 per dollar on Thursday after hitting an all-time low of 92.3650 during the session.

Rupee's weakness has a significant impact on market sentiment, as it aggravates foreign capital outflows, since currency depreciation reduces the returns of foreign investors. Moreover, the rupee's fall also raises the risk of inflation, which can lead to higher interest rates — another negative for markets.

3. FII selling relentlessly

In just seven sessions of March, foreign institutional investors (FIIs) have sold off Indian stocks worth over ₹39,100 crore in the cash segment. This is the ninth consecutive month of FII selloffs in the cash segment of Indian equities.

“Even though DIIs are continuously buying in the market, DII buying is not helping the market to recover since FIIs are sustained sellers and show no signs of reversing their strategy in this uncertain global environment,” said Vijayakumar.

4. US-Iran war shows no signs of ending

The raging US-Israeli war against Iran is not showing signs of ending in the near future, with the intense missile exchanges from both sides. The war, which started on February 28, entered its 13th day on Thursday.

Showing strong aggression, Iran is targeting Israel and US bases in the Middle East. AFP reported that the Israeli military says more missiles from Iran are heading towards Israel.

Iran is targeting ships in Hormuz, defying US President Donald Trump's threats of severe consequences. Bernama reported that Iraq had halted operations at the country's oil ports following an attack on an oil tanker in territorial waters.

5. Macro risks rising

The market has started factoring in rising macro risks amid the jump in crude oil prices. Experts believe a prolonged war in the Middle East will increase inflation, dent economic growth, and force the Reserve Bank of India (RBI) to raise interest rates further.

Rating agency Moody's, as suggested by media reports, believes that a prolonged Middle East war could drag India's gross domestic product (GDP) down by 1 percentage point and raise interest rates and inflation by 1.5 to 2 percentage points.

According to brokerage firm Axis Securities, every $1 increase in crude oil price increases India’s annual import bill by roughly $1.5–2 billion, and every $10 rise in oil prices may widen India’s current account deficit by nearly 0.35–0.5% of GDP. A 10% increase in crude oil prices can raise inflation by about 20 basis points, said the brokerage firm.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.