Stock Market Crash Analysis: Top Reasons Behind Sensex's 1,064-Point Drop, Nifty50 Dips Below 24,350

Indian stock markets witnessed a sharp decline on Tuesday as the BSE Sensex dropped 1,064 points to close at 80,684.45, while the NSE Nifty50 ended at 24,336.00, down 332 points. Weak global cues, investor caution ahead of the US Federal Reserve's rate decision, and mounting economic concerns contributed to the market turmoil.

The Sensex lost 1.30 per cent, and the Nifty50 fell by 1.35 per cent, with significant pressure on index heavyweights, including Reliance Industries, HDFC Bank, Infosys, Bharti Airtel, and ICICI Bank. However, select stocks such as Tata Motors, Adani Ports, Tech Mahindra, and HUL showed resilience during the trading session.

Top Reasons for Market Crash

1) US Federal Reserve Policy Uncertainty

Investor sentiment remained cautious ahead of the Federal Reserve's policy decision scheduled for Wednesday. While markets widely anticipate a 25- basis-point rate cut, uncertainty around the central bank's rate outlook for 2025 has made investors wary. The CME FedWatch Tool indicates a 97 per cent chance of a rate reduction, but sustained inflation and strong economic indicators in the US have

complicated predictions. Any deviation from dovish commentary could trigger further selloffs globally. Analysts noted that markets have already priced in the expected rate cut, shifting focus to Fed Chair Jerome Powell's comments.

2) Chinese Economic Slowdown

Fresh data from China reflected weaker-than-expected economic performance, exacerbating concerns about global demand. November retail sales in China rose by just 3 per cent, significantly down from October’s 4.8 per cent growth. Industrial production, although stable at 5.4 per cent, failed to exceed expectations.

India’s metal and auto sectors bore the brunt of these developments, with Nifty Metal and Nifty Auto indices each declining by over 0.6 per cent.

3) Strengthening US Dollar

The dollar index remained firm at 106.77, signaling a yearly gain of around 5 per cent. A stronger dollar impacts foreign investor sentiment towards Indian equities while simultaneously increasing debt repayment costs for companies with dollar denominated loans. The robust dollar further weighed on the rupee, adding pressure to emerging market economies like India.

4) India’s Trade Deficit Surge

India’s merchandise trade deficit for November widened to $37.84 billion, a significant jump from October’s $27.1 billion. Higher imports coupled with subdued export activity contributed to the widening deficit.

A rising trade deficit typically exerts pressure on the rupee. Analysts expect the Indian currency to weaken further, approaching levels of 85 against the dollar. While IT and pharmaceutical exporters stand to gain from a depreciating rupee, companies dependent on imports face higher costs, impacting their stock performance.

5) Weak Global Market Trends

Indian equities tracked declines in global markets amid cautious sentiment ahead of central bank meetings. While the US Federal Reserve’s policy decision remains in focus, the Bank of Japan is expected to maintain its stance.

Asian markets mirrored the negative trend, with the MSCI Asia-Pacific Index (excluding Japan) slipping 0.3 per cent. Japan’s Nikkei dropped 0.15 per cent, while European markets signaled muted openings. Euro Stoxx 50 futures declined 0.16 per cent, German DAX futures fell 0.06 per cent, and FTSE futures weakened by 0.24 per cent.

The total market capitalization of BSE-listed companies fell by Rs 2.33 lakh crore, reaching Rs 257.73 lakh crore, as investors offloaded equities amid risk aversion.

Heavyweight sectors like banking, IT, and energy led the market decline, with Reliance Industries, HDFC Bank, and Infosys among the biggest laggards.

Stocks such as Tata Motors, Adani Ports, and HCL Tech bucked the trend, posting modest gains.

Market analysts believe that global factors, including the US Fed commentary and China’s economic trajectory, will remain critical for Indian markets in the near term. Investors are advised to monitor central bank policy signals and trade deficit developments to gauge market direction.