Sensex crashes 1,300 points in 3 days; why is the Indian stock market falling? Explained with 5 key factors

The Indian stock market benchmarks extended losses to their third consecutive session on Wednesday, December 10, with the benchmark Sensex falling nearly 300 points and the Nifty 50 dropping near 25,750.

On Wednesday, the Sensex ended 275 points, or 0.32%, lower at 84,391.27, while the Nifty 50 settled at 25,758, down 82 points, or 0.32%. The BSE Midcap and Smallcap indices fell 1.08% and 0.58%, respectively.

In three sessions, the Sensex has lost 1,321 points, or 1.5%, while the Nifty 50 has declined 1.6%.

Why is the Indian stock market falling?

According to experts, these five factors could be behind the selloff in the Indian stock market:

1. Uncertainty over India-US trade deal

India and the US remain engaged in trade talks, but a final outcome is yet to be declared. While US trade negotiators are in India this week to continue trade talks, there are apprehensions that a deal may not be finalised in December due to holidays.

"Trade talks will happen this week, but a deal looks unlikely in December or probably in the first week of January because the US will be in holiday mode. So, for the next 20-25 days, there is no major event that can provide a directional uplift to the market," Pankaj Pandey, the head of research at ICICI Securities, told Mint.

Meanwhile, as talks are ongoing, US President Donald Trump has threatened to impose additional tariffs on Indian rice imports, sparking fears that the tariff issue may not be resolved anytime soon.

2. Rupee's weakness

Rupee's weakness against the US dollar remains a key concern for investors. The rupee depreciated 9 paise to close at 89.96 (provisional) against the US dollar on Wednesday, as dollar demand from corporates, importers and foreign portfolio investors weighed on investors' sentiments.

“The rupee’s movement is largely influenced by the RBI. If the RBI is allowing some depreciation to offset the impact of tariffs, then there is little reason to expect the currency to stabilise immediately. Further weakness cannot be ruled out,” said Pandey.

3. Lack of fresh directional triggers

Some experts believe that there is some sort of fatigue among retail investors as the market lacks directional triggers. While healthy growth-inflation dynamics remain key positive for the medium term, the market is looking for fresh triggers to extend and sustain gains. Experts believe the domestic market may remain volatile till December quarter earnings start coming on expected lines and the India-US trade deal is sealed.

"Failure of the market to hold on to the recent all-time high and absence of fresh triggers for a rally have resulted in some sort of fatigue among investors. The fact that the vast majority of retail investors haven’t participated in this narrow rally dominated by a few large-caps makes the retail disillusionment heavy," VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.

"Even when the Nifty set a new record, 320 stocks in NSE 500 were trading below their peaks, leaving the retail investors with portfolios dominated by mid and small caps unhappy. Consequently, we are seeing further selling in the mid and small-caps pushing their prices down, while the strong large-caps, which led this rally, are remaining resilient," said Vijayakumar.

4. Caution ahead of US Fed policy

Markets globally appear cautious ahead of the US Fed policy outcome on Wednesday. While market participants expect the central bank to cut rates by 25 bps, experts believe a hawkish Fed may further weigh on market sentiment.

5. Jump in US, Japan bond yields

Rising bond yields in the US and Japan are also influencing global market sentiment.

Rising yields in Japan could undermine the viability of the yen carry trade, posing a significant risk for emerging markets like India, as it may accelerate foreign capital outflows from these markets.

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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.