Amid conflicting global cues, the benchmark Indian stock market, the Sensex, dropped more than 900 points in morning trading on February 12—its sixth straight day of losses.
Amid conflicting global cues, the Indian stock market benchmark Sensex plummeted more than 900 points in morning trading on Wednesday, February 12, extending its losing run to the sixth consecutive day. The 30-share pack plummeted more than 900 points from its previous closing of 76,294 to 75,388 while the Nifty 50 fell more than 1% to 22,798 on the negative.
As the BSE Midcap and Smallcap indices fell up to 3%, the mid and small-cap categories continued to perform poorly.
From ₹408.5 lakh crore in the previous session, the total market capitalization of the companies listed on the BSE fell to around ₹400.5 lakh crore. Investors thus lost almost ₹8 lakh crore in a single day.
At approximately 11:50 AM, the Nifty 50 was down 66 points, or 0.28 percent, at 23,006, while the Sensex was down 284 points, or 0.37 percent, at 76,009.
Why is the stock market in India declining?
The Indian stock market selloff can be attributed to the following five major factors:
1. Exercise caution in light of the recent income tax bill :
The latest market selloff may be partially caused by caution ahead of the upcoming Income Tax Bill.
The new Income-Tax (I-T) Bill, which Finance Minister Nirmala Sitharaman unveiled in her February 1 Budget speech, is reportedly scheduled to be introduced in the Lok Sabha on Thursday.
The new I-T Bill has raised concerns about increased tax rates on financial securities.
“Weak market players also engaged in panic selling as a result of unfounded concerns about increased tax rates on financial instruments brought on by the New Income Tax Bill’s adoption. “Margin calls on funded positions may be the cause of some of the selling,” stated Devarsh Vakil, HDFC Securities’ Head of Prime Research.
2. The hawkish remarks made by US Fed Chair Jerome Powell :
In his testimony before Congress on Tuesday, US Federal Reserve Chair Jerome Powell reiterated the central bank’s cautious approach on interest rates, shattering hopes of further rate reduction from the US Fed this year.
Powell said that while inflation is still high and the labor market is still doing well, the central bank is not under any pressure to lower interest rates anytime soon.
3. A vigorous sell-off of FPI :
Since October of last year, Indian stocks have been aggressively sold by foreign portfolio investors (FPIs). Since October, they have sold off Indian stocks totaling more than 2.8 lakh crore.
An enormous outflow of foreign capital from the Indian stock market has been caused by a number of causes, including the stretched valuation of the Indian stock market, indications that growth is slowing down, poor quarterly results, the weakening of the rupee, the strength of the US dollar, and high bond yields.
4. Trump’s outbursts over tariffs :
The current market selloff is largely due to US President Donald Trump’s tariff rants. Because of tariff measures, markets around the world are worried about the potential for a global trade war.
“The markets have been affected by Trump’s tariff rants for a number of days. Trump’s decision to impose import duties on steel and aluminum worldwide, rather than focusing on certain nations like Mexico, Canada, and, to a lesser extent, China, has made the situation worse.The likelihood of a full-scale trade war has increased after the European Union announced that it would respond with counter-tariffs. It’s unclear how this will turn out,” stated V K Vijayakumar, Geojit Financial Services’ chief investment strategist.
5. Low profits and high values :
For the past three quarters, Indian corporations have reported lower quarterly profitability, which has caused valuations to become unsustainable and prompted a steep selloff by foreign investors. The market is finding it difficult to maintain high valuations due to weak earnings.
Varun Fatehpuria, the founder and CEO of Daulat Finvest Private Limited, stated, “The recent slowdown in earnings is leading to a partial moderation of these elevated valuations, even though robust earnings growth previously justified their multiple re-rating.”