Sensex plunges 1,300 points in 2 days: What's the reason?
What's the story
The Indian stock market has witnessed a major crash, with the benchmark Sensex plummeting over 1,300 points in just two sessions. The Nifty 50 index has also lost nearly 2% during this period. The fall has been especially steep in mid and small-cap segments, which are under heavy selling pressure. The BSE Midcap and Smallcap indices have both fallen by about 1.5% each during the session today.
Market analysis
Factors contributing to the market downturn
Experts have identified five key factors contributing to the ongoing selloff in the Indian stock market. These include uncertainty over an India-US trade deal, weakness of the Indian rupee against the US dollar, and a lack of fresh directional triggers for investors. Other factors are caution ahead of a US Federal Reserve policy decision and rising bond yields in both the US and Japan.
Trade concerns
Trade deal uncertainty and rupee's weakness
The ongoing trade talks between India and the US have not yet resulted in a final outcome, raising fears of an unresolved tariff issue. Meanwhile, the Indian rupee's depreciation against the US dollar has been another major concern for investors. The domestic currency fell by 10p to 90.15 against the greenback today as dollar demand from corporates, importers, and foreign portfolio investors weighed on investor sentiment.
Market fatigue
Investor fatigue and global market caution
Some experts believe that retail investors are showing signs of fatigue due to a lack of directional triggers in the market. This is despite healthy growth-inflation dynamics remaining a key positive for the medium term. Meanwhile, global markets are cautious ahead of an upcoming US Federal Reserve policy decision, with participants expecting a rate cut but wary of potential hawkishness from the central bank.
Yield effects
Rising bond yields impact global market sentiment
The rise in bond yields in the US and Japan is also impacting global market sentiment. The US 10-year treasury yield hit a two-week high of 4.18% today, while the Japanese government bonds hovered near a 17-year high. These rising yields could undermine the yen carry trade's viability, posing a major risk for emerging markets like India by potentially accelerating foreign capital outflows.