Sensex crashes 600 points, investors lose over ₹7 lakh crore— What drove the market down? Explained

The Indian stock market suffered significant losses on Monday, 8 December, with the benchmark indices falling by nearly 1%, and the mid- and small-cap segments experiencing deeper losses of up to 2%.

The Sensex crashed 837 points, or nearly 1%, to an intraday low of 84,875.59, while the Nifty 50 dropped by 1.12% to an intraday low of 25,892.25.

Finally, the Sensex closed 610 points, or 0.71%, lower at 85,102.69, while the Nifty 50 settled at 25,960.55, down 226 points, or 0.86%. The BSE Midcap and Smallcap indices crashed 1.73% and 2.20%, respectively.

The overall market capitalisation of BSE-listed firms dropped below ₹464 lakh crore from ₹471 lakh crore in the previous session, making investors poorer by more than ₹7 lakh crore in a single session.

What drove the Indian stock market down?

While the medium-term outlook of the market remains positive, experts highlight the following five factors that could be behind this selloff. Take a look:

1. Rupee's weakness

The Indian rupee is hovering near its record low. On Monday, the domestic currency plummeted to 90.15 against the US dollar due to a surge in crude oil prices and a relentless outflow of foreign capital. This seems to have dealt a major blow to market sentiment.

The rupee's weakness this year has baffled investors and experts, as the currency is touching new lows against the dollar, despite India's strong GDP growth and record-low inflation.

The Indian rupee hit an all-time low of ₹90.46 per US dollar on 4 December, pressured by the delay in the India-US trade deal and continuous foreign capital outflow from the Indian stock market.

India’s Q2FY26 GDP growth surged to a six-quarter high of 8.2%. On the other hand, India’s retail inflation plunged to a record low of 0.25% in October.

2. Caution ahead of the US Fed policy outcome

The market's focus is on the US Fed's interest rate decision on 10 December. While there are high expectations that the central bank will cut rates by 25 basis points, retail investors appear to be on a selling spree to avoid the impact of a negative surprise.

Experts say that in the event of no rate cut by the US Federal Reserve, the dollar may become firmer, putting further pressure on the Indian stock market, which is struggling due to the Indian rupee's weakness and FII (foreign institutional investors') outflow.

3. Lingering uncertainty on the India-US trade deal

While there have been positive indications from India and the US about a potential deal, there is still uncertainty about the timing and final shape of the deal.

As Bloomberg reported, a senior US State Department official will visit India this week to continue talks on a trade agreement.

On Saturday, 6 December, in an interaction at the 23rd edition of the Hindustan Times Leadership Summit (HTLS), External Affairs Minister S Jaishankar hinted at the possibility of a trade deal with the US that could be finalised soon, but emphasised that the interests of workers, farmers, and the middle class remain the top priority of the government.

4. Spike in Japanese bond yields

Japanese government bond yields jumped to fresh multi-year highs on Monday, raising concerns over a potential reversal of the yen carry trade. A rise in Japanese bond yields indicates that interest rates in Japan may rise, which in turn will strengthen the yen.

In that case, investors will lose the interest-rate advantage of borrowing in yen, which may force them to unwind carry trades. This will be a major negative for emerging markets like India.

"The spike in Japanese bond yields can trigger another bout of reversal of the yen carry trade. It will be a strong negative for the market," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

5. FIIs' relentless selling

FIIs have been selling Indian equities since July this year. In the cash segment, they have sold off India stocks worth over ₹1.60 lakh crore since July. In only five sessions of December, they have offloaded stocks worth ₹10,404 crore in the Indian market.

Heavy foreign capital outflow despite valuation comfort in large-caps and expectations of earnings recovery from Q3 onwards keep the market mood fragile. Experts say the market may remain volatile unless the December quarter earnings start coming on expected lines and an India-US trade deal is finalised.

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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.