Indian Stock Market Crash: Sensex Plunges 1,200 Points, Nifty Below 24,000 Amid US Fed Concerns

A Major Downturn Shakes Indian Markets

On December 19, 2024, the Indian stock market experienced a severe downturn, with the Sensex plunging nearly 1,200 points and the Nifty 50 dropping below the critical 24,000 mark. This significant crash was primarily triggered by global economic concerns, particularly the US Federal Reserve’s hawkish stance on interest rate cuts.

The broader market sentiment deteriorated rapidly, leading to a sell-off that wiped out investor wealth, reducing the BSE market capitalisation by approximately ₹13 lakh crore over four trading sessions.

Key Highlights of the Stock Market Performance

Index	Opening	Low	Change
Sensex	79,029.03	79,020.08	-1,200 points
Nifty 50	23,877.15	23,870.30	Dropped below 24,000

Despite slight intraday recovery, investor sentiment remained fragile, and analysts expressed caution for the near-term market outlook.

Understanding the Market Crash

1. The US Federal Reserve’s Hawkish Stance

The US Federal Reserve was a major trigger for the Indian market’s steep decline. While the Fed announced a 25 basis point interest rate cut, the accompanying statement dampened global investor optimism.

• The Fed projected only two additional rate cuts through 2025, contrary to market expectations of three or four cuts.
• This hawkish stance led to strengthening of the US dollar and rising bond yields, which triggered a ripple effect across global markets.

Major Asian indices fell significantly, and the S&P 500 and Nasdaq plummeted by approximately 3%, intensifying pressure on emerging markets like India.

2. Foreign Institutional Investors (FIIs) Exit Indian Markets

Foreign Institutional Investors (FIIs) played a critical role in exacerbating the market crash. Over the last three sessions alone, FIIs sold equities worth more than ₹8,000 crore, as they moved capital to safer assets like US bonds, which now offer higher returns due to rising yields.

• FIIs’ withdrawal highlights their preference for stable returns amidst global economic uncertainty.
• Domestic Institutional Investors (DIIs) provided limited support but were unable to offset the intense selling pressure.

3. The Indian Rupee Hits a Record Low

Adding to the market woes, the Indian rupee depreciated to a record low of ₹85.3 per dollar.

• A weaker rupee erodes foreign investors’ returns, diminishing confidence in the Indian market.
• Depreciation also raises inflationary pressures by increasing the cost of imports, especially oil, which adds to India’s economic challenges.

4. Widening Trade Deficit and Slowing GDP Growth

India’s macroeconomic indicators further rattled investors:

• Trade Deficit: The trade deficit widened to $37.84 billion in November 2024, far exceeding analysts’ expectations.
• GDP Growth: India’s GDP growth rate slowed to its lowest level in nearly two years, raising concerns over economic stability and recovery.

These factors combined to cast doubt over India’s ability to sustain its growth trajectory, leading to increased risk aversion among investors.

5. Corporate Earnings Recovery Uncertainty

Another critical factor weighing on investor sentiment is the lackluster corporate earnings performance.

• Q1 and Q2 earnings reports fell short of market expectations, and Q3 outlook remains uncertain.
• Analysts believe that while government spending and agriculture-driven recovery may support certain sectors, substantial improvement may not occur until Q4 2024.

Sectoral Impact: IT and Banking Stocks Take the Hit

The market crash impacted various sectors differently, with IT stocks and banking stocks being the hardest hit:

1. IT Sector

IT companies faced significant losses due to their reliance on US markets for revenue. A hawkish Fed policy dampened prospects for IT firms, leading to sharp declines.

• Companies like Infosys, TCS, and Wipro witnessed notable drops.

2. Banking Sector

The banking sector also saw steep losses as investor sentiment weakened:

• HDFC Bank and other leading financial institutions contributed heavily to the Sensex’s decline.
• Rising inflation concerns and a weaker rupee further exacerbated pressure on banking stocks.

3. Broader Market and VIX Surge

The volatility index (VIX) surged by 5%, reflecting increased fear and uncertainty among traders. Broader markets mirrored the benchmark indices, with mid-cap and small-cap stocks facing sharp declines as well.

Market Reaction and Investor Sentiment

As trading progressed on December 19, there was a slight recovery from earlier lows:

• Around 2:05 PM IST, the Sensex was down by 920 points, or 1.15%, at 79,263.
• The Nifty 50 showed some improvement but still ended down 242 points, or 1%, at 23,957.

Despite this partial recovery, investor sentiment remains fragile due to macroeconomic concerns, global headwinds, and the depreciating rupee.

Outlook: What Lies Ahead for Indian Markets?

Market analysts suggest that the Indian stock market will likely remain volatile in the near term as investors monitor key developments:

• US Federal Reserve’s future policies and global interest rate trends.
• India’s trade deficit, currency stability, and GDP growth projections.
• Corporate earnings performance in Q3 and Q4.

Key Support Levels to Watch

• Sensex: Analysts identify 78,500 as a crucial support level.
• Nifty 50: A breach below 23,800 could trigger further selling pressure.

Navigating Turbulent Market Conditions

The significant downturn in the Indian stock market on December 19, 2024, was driven by multiple interconnected factors, including the US Federal Reserve’s hawkish stance, sustained FII outflows, a weakening rupee, macroeconomic challenges, and corporate earnings uncertainties.

While partial recovery was observed intraday, investor sentiment remains cautious amid rising volatility. Going forward, markets will be closely watching global economic cues and domestic recovery indicators to gauge future trends.

For investors, this turbulent phase calls for a cautious and balanced approach, focusing on fundamentally strong stocks while keeping an eye on critical support levels for the Sensex and Nifty.

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FAQs

1. Why did the Sensex and Nifty fall on December 19, 2024?
The crash was primarily due to the US Federal Reserve’s hawkish stance on interest rates, coupled with FII outflows, a depreciating rupee, and macroeconomic concerns.

2. How much did the Sensex and Nifty drop during the session?
The Sensex plunged nearly 1,200 points, while the Nifty 50 dropped below the critical 24,000 level.

3. What role did the US Federal Reserve play in the market crash?
The Fed’s projection of only two rate cuts in 2025 disappointed investors who expected three or four cuts, leading to a stronger dollar and global market sell-offs.

4. Which sectors were most impacted during the downturn?
The IT and banking sectors faced the sharpest declines due to their reliance on US markets and macroeconomic pressures.

5. What is the outlook for Indian markets?
Indian markets are likely to remain volatile in the short term, with investors focusing on global interest rate trends, domestic macroeconomic indicators, and corporate earnings recovery.