Sensex drops 534 points, Nifty 50 slips below 25,900— What drove the Indian stock market down? Explained

Stock market today: The Indian stock market saw across-the-board selling on Tuesday, December 16, tracking weak global cues. The Sensex dropped 600 points to hit an intraday low of 84,620.61 while the Nifty 50 slipped below the psychologically important level of 26,000, touching an intraday low of 25,834.35.

Finally, the Sensex declined 534 points, or 0.63%, to end at 84,679.86, while the Nifty 50 settled at 25,860.10, falling 167 points, or 0.64%. The BSE Midcap index fell 0.78% while the Smallcap index declined 0.69%.

Investors lost more than ₹3 lakh crore in a single session, as the overall market capitalisation of BSE-listed firms was nearly ₹467.6 lakh crore on Tuesday compared to ₹471 lakh crore in the previous session.

The domestic market has been in the doldrums this month. The Sensex and the Nifty 50 are down over 1% each in December so far, looking set to snap their three-month winning streak.

What drove the Indian stock market down?

Experts highlight the following five reasons behind the market fall:

1. Rupee's acute weakness against the US dollar

The Indian rupee is at its record low, hovering near 91 against the US dollar, dealing a severe blow to market sentiment. The domestic currency plunged 36 paise to breach the 91-mark against the US dollar for the first time in intra-day trade on Tuesday.

The domestic currency has fallen about 6% this year so far due to persistent FII outflows and trade imbalance.

"Three forces have driven rupee's weakness: (i) a capital-flow deficit created by persistent FII equity outflows, (ii) a policy decision to allow the rupee to reflect fundamentals rather than defend arbitrary levels, and (iii) a structural import imbalance still tilted towards energy, electronics, and gold," Rishabh Nahar, Partner and Fund Manager at Qode Advisors, told Mint.

2. Weak global cues

Major Asian peers, including Japan's Nikkei, Korea's Kospi, and Hong Kong's Hang Seng, crashed up to 2% during the session, following a 0.61% decline in the Nasdaq overnight, ahead of key US macro data, such as the November jobs report due later today.

"US tech stocks dropped, dragging three major indexes down with them as investors prepare for another wave of delayed economic data. This week’s jobs data could be more important for equities' perception of interest rate policy going forward than last week’s FOMC meeting," said Vikram Kasat, Head of Advisory, PL Capital.

Caution ahead of the policy decisions of the Bank of England (BoE) and the Bank of Japan (BoJ) this week are also keeping the risk appetite low.

3. Relentless foreign capital outflow

Foreign institutional investors (FIIs) have been aggressively selling Indian stocks since July. In December so far, they have already offloaded Indian equities worth over ₹21,000 crore in the cash segment.

Since July, FIIs have sold off Indian stocks worth over ₹1.70 lakh crore in the cash segment.

Massive foreign capital outflow is among the biggest reasons why the market has been struggling to have a sustained bull trend this year.

4. Tight liquidity situation in the secondary market

A flood of IPOs this year has created a dearth of retail liquidity in the secondary market, keeping the market in a range.

"For the domestic markets, there are two major worries in the short-term: falling rupee, which is triggering continuous selling of equities by the FIIs and lack of adequate liquidity in the secondary markets due to continued boom in the primary markets," said G Chokkalingam, Founder and Head of Research, Equinomics Research Private Limited.

5. Technical factors

Nifty has a key hurdle at 26,060. Over the last few sessions, it has been observed that the index fails to hold this level decisively.

"On the higher side, 26,060 would be the immediate resistance zone for day traders. A breach of 26,060 could push the market up to 26,150-26,250. However, below 25,700, the uptrend would become vulnerable," said Shrikant Chouhan, Head Equity Research, Kotak Securities.

"For traders, 25,900 and 25,850 would act as key support zones. As long as the market is trading above these levels, the positive sentiment is likely to continue," said Chouhan.

Anand James, Chief Market Strategist at Geojit Investments, expects consolidation in the 26,000-25,970 vicinity, followed by attempts to push higher.

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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.