Sensex crashes 1,350 points; investors lose ₹9 lakh crore— Key factors behind market crash explained

The Indian stock market suffered massive losses on Monday, March 9, due to a sharp selloff across sectors amid rising tensions in West Asia (Middle East), a steep rise in crude oil prices, and weak global cues.

The Sensex crashed 1,353 points, or 1.71%, to end at 77,566.16, while the Nifty 50 declined 422 points, or 1.73%, to end at 24,028.05. The BSE 150 MidCap Index crashed 2%, while the BSE 250 SmallCap Index plunged 2.46%.

Investors lost ₹9 lakh crore in a session, as the overall market capitalisation of BSE-listed firms dropped to nearly ₹441 lakh crore from ₹450 lakh crore in the previous session.

Why did the stock market fall? 5 key factors explained

1. Crude oil prices vault above $115

Brent crude surged over 26% to $117.16 per barrel for the first time since 2022 due to the US-Iran war and the consequent disruption to shipping through the Strait of Hormuz, with major oil producers in the Middle East cutting supplies.

India, which is the world's third-largest importer of crude oil, imports about 85-90% 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.

A sharp surge in crude oil prices can flare up inflation, further weaken the Indian rupee, widen the current account deficit, and puncture the momentum of Indian economic growth. This may impact corporate profitability.

A prolonged period of elevated crude oil prices may even force the Reserve Bank of India (RBI) to shift its policy stance to a hawkish one.

"A sustained elevation in crude prices doesn't just dent sectoral margins, it disrupts the entire cost architecture of multiple industries and the wider economic outlook simultaneously," said Ravi Singh, Chief Research Officer at Master Capital Services.

"The hike in crude price, if sustained, could meaningfully hit the Q4 earnings both at the sectoral and broader market basis. Beyond the corporate earnings impact, higher crude oil bills also accelerate India's foreign currency outflows and exert depreciation pressure on the INR (Indian rupee) too," Singh said.

2. Rupee falls to record low

According to Bloomberg data, the rupee lost 58 paise to settle at 92.33 after hitting an all-time low of 92.3575 against the US dollar on Monday.

Rupee's weakness is a major factor driving panic selling, as the domestic currency's decline can exacerbate foreign capital outflows, heighten inflationary risks, and weigh on corporate earnings.

The Indian currency hit a previous record low of 92.30 last week but recovered after the likely intervention of the RBI.

Reuters, quoting traders, reported that the RBI likely stepped into the foreign exchange market and is selling dollars to stem the fall of the Indian rupee.

3. No signs of war ending soon

There are no signs that the war between Iran and the combined forces of the US and Israel is going to end soon.

Mojtaba Khamenei, son of the slain Ayatollah Ali Khamenei, has been appointed as Iran’s new supreme leader. According to experts, this is also seen as a signal that Tehran is not ready to back down from the war.

Meanwhile, according to media reports, Iran’s foreign minister, Abbas Araghchi, has rejected calls for a ceasefire.

Araghchi told NBC News’ “Meet the Press” that Iran must “continue fighting for the sake of its people.”

The war has already sent crude oil prices to multi-year high levels. If the Middle East crisis continues for a longer period, it could have a serious impact on India's macro outlook and market sentiment.

"The unknown factor now is how long the conflict will last. This uncertainty will also weigh on FIIs, who have again turned aggressive sellers in India after the short bout of buying in February," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

4. US dollar, bond yields jump

Strong jump in the US dollar and bond yields amid a raging war in the Middle East is also contributing to the stock market selloff. The dollar index jumped more than half a per cent, and US 10-year bond yields jumped nearly 2% to 4.21%, weighing on market sentiment.

A jump in the dollar and bond yields signals that foreign institutional investors may continue selling stocks in emerging markets like India, which is significantly exposed to crude oil shocks, has elevated valuations, and a weakening currency.

5. Global selloff

The domestic market is mirroring the global trend as the US-Iran war has spooked investors globally. Major markets in Asia, such as Korea's Kospi, crashed 6% during the session, while Japan's Nikkei suffered a loss of 5.5%.

Major European markets in the UK, Germany, and France crashed up to 2%.

Global markets are reacting to the US-Iran war, a sharp jump in crude oil prices, and the dollar's rise against its peers.

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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.