The Indian stock market experienced a sharp decline in early trading on Thursday, December 19, as investor sentiment soured following the US Federal Reserve’s cautious stance on future rate cuts. The benchmark Sensex plummeted by nearly 1,200 points, while the Nifty dropped below the critical 24,000 mark, hitting 23,870.
The Sensex opened at 79,029.03, lower than its previous close of 80,182.20, and plunged 1,162 points to touch a low of 79,020.08. Similarly, the Nifty 50 began the session at 23,877.15, down from its previous close of 24,198.85, and fell 329 points to hit 23,870.30.
Investor wealth took a massive hit as the market capitalisation of BSE-listed firms shrank to approximately ₹446.5 lakh crore, a steep drop from ₹452.6 lakh crore the day before. This marked a loss of ₹6 lakh crore in a matter of minutes. Over the past four trading sessions, the cumulative losses have reached nearly ₹13 lakh crore, with the market capitalisation falling from ₹459.4 lakh crore on December 13.
Key reasons behind the fall
- The downturn was triggered by the US Federal Reserve’s decision to cut its benchmark interest rate by 25 basis points to 4.25–4.50% on December 18. While the move was in line with market expectations, the Fed’s updated guidance dampened global sentiment. It now anticipates only two more quarter-point rate cuts by the end of 2025, a less aggressive approach than the market’s expectation of three or four cuts.
Global markets reacted negatively, with major Asian indices tumbling after the S&P 500 and Nasdaq slid 3% overnight. Additionally, the US dollar surged to a nearly two-year high following the Fed’s announcement, further pressuring emerging markets like India.
- Foreign institutional investors (FIIs) have been offloading Indian equities at an alarming pace, selling over ₹8,000 crore worth of shares in just three sessions. A strengthening dollar, rising bond yields, and diminished hopes of significant rate cuts next year have prompted this exodus.
Adding to the turmoil, the Indian rupee slumped to a historic low of 85.3 against the dollar on Thursday, exacerbating the market’s woes.
- The rupee fell by 12 paise to a record low of 85.06 against the US dollar on Thursday morning (December 19, 2024), as the US Federal Reserve’s hawkish stance boosted the dollar’s strength globally. The weakening rupee has a dual negative impact on the markets. First, it discourages foreign investors, as their returns shrink when converting profits back to their home currencies. This leads to capital outflows, intensifying the downward pressure on equities.
Second, a weak rupee fuels inflation by increasing the cost of imported goods and raw materials. Higher inflation, in turn, prompts tighter monetary policies, creating additional headwinds for the market.
