Sensex crashes 2,400 points in 3 days: Key reasons explained
What's the story
The Indian stock market has been on a downward spiral for the third consecutive session today. The BSE Sensex plunged over 1,000 points or more than 1% to hit an intraday low of 81,124.45. The Nifty 50 also fell below its 200 DEMA (daily exponential moving average), which is around the level of 25,150 and hit an intraday low of 24,919.80. However, at the time of writing, both indexes had staged a comeback, with the Sensex recovering to 82,000.
Investor losses
Market capitalization of BSE-listed firms drops significantly
The market downturn has been widespread, with the BSE Midcap and Smallcap indices also crashing by 2% each. In just three sessions, investors have lost nearly ₹18 lakh crore as the overall market capitalization of BSE-listed companies fell below ₹450 lakh crore from ₹468 lakh crore on Friday. Since Monday, the Sensex alone has plummeted over 2,400 points or nearly 3%, while Nifty 50s has also witnessed a similar plunge.
Market drivers
Key factors behind the market fall
Several key factors are driving the fall in the Indian stock market. Firstly, investors are wary of a potential trade war between the US and EU amid broader geopolitical tensions, including President Donald Trump's Greenland acquisition push. He recently announced a 10% tariff on eight European countries from February 1, which could rise to 25% from June 1. European nations are reportedly considering retaliatory measures that could trigger a trade war and impact global economic growth.
Trade tensions
European Parliament may suspend US trade deal approval
Media reports suggest that the European Parliament could soon announce the suspension of approval for a US trade deal agreed upon in July. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said there is a risk-off sentiment in global markets due to Trump's Greenland policy and threatened tariffs on eight European countries. He warned if these tariffs are imposed, Europe will retaliate leading to a trade war with dire consequences for global trade and growth.
Currency crisis
Indian rupee falls to record low against dollar
Separately, the Indian rupee has also fallen to a record low of 91.34 per dollar, falling for the sixth consecutive session. The sharp depreciation of the Indian rupee against the dollar over the past year is due to foreign capital outflows and US tariffs on Indian goods. RBI has intervened to support currency but its intervention has been relatively lower than required in these times of global tensions.