Sensex crashes 850 points, investors lose ₹5 lakh crore; why is the Indian stock market falling? EXPLAINED

Mint

2 days ago

The Indian stock market suffered strong losses across segments on Thursday, June 12. The Sensex fell nearly 1,000 points, and the Nifty 50 dropped below 24,850 during the session.
The Sensex opened at 82,571.67 against its previous close of 82,515.14 and plunged 992 points, or 1.2 per cent, to an intraday low of 81,523.16. The Nifty 50 opened at 25,164.45 against its previous close of 25,141.40 and crashed 1.3 per cent to an intraday low of 24,825.90.
Finally, the Sensex closed with a loss of 823 points, or 1 per cent, at 81,691.98, while the Nifty 50 settled 253 points, or 1.01 per cent, lower at 24,888.20. The BSE Midcap and Smallcap indices dropped 1.52 per cent and 1.38 per cent, respectively.
The overall market capitalisation of firms listed on the BSE dropped to nearly ₹ 449.6 lakh crore from about ₹ 455.6 lakh crore in the previous session, making investors poorer by ₹ 6 lakh crore in a single session.
Experts point out the following five factors behind the selloff in the Indian stock market:
Rising tensions in the Middle East weighed on markets globally. Major Asian and European markets suffered significant losses during the session on signs of rising tensions between the US and Iran.
The US is pulling out non-essential personnel from the Middle East due to rising regional tensions as nuclear negotiations continue to break down, according to statements from the US State Department and the military reported by The Times of Israel on Wednesday.
Speculations are rife that Israeli forces would carry out an attack against Iran's nuclear program. Meanwhile, US President Donald Trump has reiterated that the US won't allow Iran to have a nuclear weapon.
The US-China trade deal has failed to boost market sentiment as investors hoped for a more sweeping deal.
Trump announced on Wednesday that China will supply the US with rare-earth minerals and magnets and that the US administration will allow Chinese students into US universities. However, Trump and his Chinese counterpart still need to agree on the deal.
'Our deal with China is done, subject to final approval with President Xi and me. Full magnets and any necessary rare earths will be supplied, up front, by China. Likewise, we will provide to China what was agreed to, including Chinese students using our colleges and universities (which has always been good with me!). We are getting a total of 55% tariffs, and China is getting 10%. The relationship is excellent! Thank you for your attention to this matter!' Trump wrote on Truth Social.
"There are reports of a possible agreement between the US and China. But the Chinese haven't officially confirmed anything. President Trump is talking about a 55 per cent tariff on China and a 10 per cent tariff on the US. Trump's credibility being what it is, it would be too early to discount this as positive for markets," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Concerns over an economic slowdown in the US due to Trump's tariff policies remain a key concern for markets globally.
The World Bank on Tuesday warned that US tariff policies will cause a slowdown in both the US and global economies.
The World Bank has revised its economic growth projections, now expecting a slowdown to 2.3 per cent in 2025 (0.4 percentage points below the January forecast), 2.4 per cent in 2026 (0.3 percentage points lower) and 2.6 per cent in 2027.
"The tariff crisis is not yet over. President Trump has declared that he will be sending letters to trade partners in the next two weeks setting universal tariffs. Market participants will be waiting and watching for clarity on this," said Vijayakumar.
Despite softer-than-expected May US CPI prints, experts believe the US Federal Reserve will remain cautious and avoid any rate cuts in the June policy meeting due to persisting uncertainty about the US tariff policy. Concerns are rising that tariff-related uncertainty will delay interest rate cuts in the US, weighing on market sentiment.
"The sharp sell-off was triggered by a combination of global and domestic factors. Weak global cues, particularly concerns around sticky US inflation data and the possibility of delayed interest rate cuts by the Federal Reserve, weighed heavily on investor sentiment," said Pranay Aggarwal, Director and CEO of Stoxkart.
The US Federal Open Market Committee (FOMC) meeting is scheduled for June 17-18.
"The market continues to price in two Fed cuts in 2025, with this print barely moving the needle on rate cut pricing. The probability of a cut next week is literally zero, with the next cut expected in October," said Madhavi Arora, Chief Economist, Emkay Global Financial Services.
"While May US CPI print is somewhat reassuring, there remains very little signal in the data, with firms continuing to manage tariffs for now – tariffs will likely only show up in the data (either through higher inflation or lower profit margins) a few months down the line. In such a scenario, the Fed will remain in wait-and-watch mode," Arora said.
Stretched valuations in the Indian stock market have been one of the key reasons behind intermittent profit booking by both domestic retail and foreign investors.
Experts point out that the current P/E ratio of the Nifty 50, at 22.60, is above its one-year average of 22.19 and is close to its six-month high of 22.80.
With the domestic market lacking fresh positive triggers, stretched valuations are prompting caution among investors.
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