Nikhil Khajuria
The Indian stock market, which was once soaring to record highs, has started a prolonged phase of downturn, leaving investors and analysts cautious. The BSE Sensex and NSE Nifty 50, two of the country’s biggest indices, have experienced a steady decline, wiping out trillions of dollars in investor value. Since September 2024, the Indian stock market has been on a downward trend, with one of the longest losing streaks in nearly three decades. The NSE Nifty 50 has fallen by about 15%, while the BSE Sensex has suffered comparable losses. This fall is not an isolated occurrence, but rather the effect of multiple domestic and global influences.
The plunge has sparked investor concern, resulting in additional sell-offs and worsening the crisis.
Several critical reasons have contributed to the systematic decline of the Indian stock market. These can be broadly classified as internal economic issues, global uncertainty, and changes in investor opinion.
One of the key reasons for the market’s fall has been a significant outflow of Foreign Institutional Investors (FIIs). According to data, since September 2024, FIIs have taken about $25 billion out of Indian stocks, diverting their assets to other emerging economies with higher yields. This capital flight has had a considerable impact on stock values, particularly in the blue-chip group.
Poor corporate earnings have aggravated the situation. Several critical sectors, including banking, information technology, and fast-moving consumer goods, have reported unsatisfactory financial results due to increased input costs, decreased demand, and regulatory uncertainty. Many companies have failed to fulfil market expectations, resulting in lower earnings predictions and panic selling among investors.
Global economic uncertainty has also played a significant part in the market decline. Increasing trade tensions between the United States and China, prospective tariff increases, and geopolitical uncertainty in crucial regions have all contributed to cautious investor mood worldwide. As a result, Indian stocks, particularly those with global exposure, have seen significant losses.
Additionally, inflationary pressures and interest rate policies have had a significant impact on the market. The Reserve Bank of India (RBI) has taken a cautious approach, maintaining interest rates relatively high to prevent inflation. Persistent price pressures have reduced disposable income and consumer expenditure, impacting the whole economy. Furthermore, the RBI’s unwillingness to quickly reduce interest rates has hindered economic growth, further dampening market sentiment.
The Indian rupee’s depreciation has exacerbated the stock market’s problems. The Indian rupee has depreciated against the US dollar due to increasing import costs, dwindling foreign reserves, and capital outflows. A weakening rupee makes Indian equities less appealing to international investors, hastening the market slide.
The market slump has had a profound impact on both individual and institutional investors. One of the most immediate consequences has been huge wealth erosion, wiping out over $1 trillion in market capitalisation. The gloomy trend has also depressed interest for new public offerings, resulting in fewer IPOs and lower investor engagement.
Mutual funds have not been immune to the slump, with equities mutual funds seeing rising redemptions as individual investors liquidate their holdings to avoid further losses. Furthermore, a sluggish stock market is frequently associated with an economic slowdown, as businesses postpone expansion plans due to decreased investor confidence.
Despite the ongoing downturn, many predict a partial rebound. Several variables may contribute to the Indian stock market’s comeback. Government policy initiatives, such as tax cuts and greater infrastructure spending, could help to boost market sentiment. These initiatives, if well executed, have the potential to significantly enhance investor confidence.
The RBI’s monetary policy decisions will also play an important role in shaping the market’s future path. According to market experts, the RBI may decrease interest rates in the second half of 2025 to increase liquidity and stimulate investment. A reduced interest rate environment may stimulate a recovery in both business and consumer expenditure.
Improving domestic consumption remains a critical driver of long-term prosperity. India’s young workforce and growing middle class form a solid platform for future economic growth. If consumer demand in important sectors rises, earnings growth may improve, boosting stock prices.
Furthermore, while FIIs have been selling out, any signs of global stability and favourable valuation levels may entice them back into Indian shares, pouring new cash into the markets.
(The author is Academician and Research Scholar Udhampur Campus, University of Jammu)
The post Bearish Trends and Investor Woes What’s driving the market down? appeared first on Daily Excelsior.