Sensex plummets 1,000 points: Key reasons behind today's market crash
What's the story
The Indian stock market witnessed a major crash today with the BSE Sensex crashing over 1,000 points and the NSE Nifty falling below the 24,000 mark.
The sharp fall was triggered by an unexpected forecast by the US Federal Reserve. The Fed projected fewer interest rate cuts in 2025 amid persistent inflation concerns.
Major players such as HDFC Bank, Infosys, and Reliance Industries led the market slump.
Market impact
Market capitalization takes a hit
The market capitalization of all BSE-listed companies was reduced by a whopping ₹5.94 lakh crore, taking the total to ₹446.66 lakh crore.
HDFC Bank, Infosys, ICICI Bank, Reliance Industries, SBI and HCL Tech together contributed to a 600-point fall in the Sensex.
Axis Bank, M&M, Kotak Bank and Bajaj Finance were other contributors to the decline.
Sector performance
US rate-sensitive IT firms and India VIX fear gage
US rate-sensitive domestic IT firms, which derive a major chunk of their revenue from the US, opened up to 5% lower. This was led by LTI Mindtree, Mphasis, and Wipro.
Meanwhile, the India VIX fear gage surged 5% to 14.37.
The US Federal Reserve announced an overnight rate cut of 25 basis points but projected only two quarter-point reductions in 2025—less than what markets had anticipated.
Investor response
Market reaction to Fed's reduced easing projection
The Fed's lowered easing projection, half a percentage point lower than anticipated, raised alarms among investors.
The probability of a January 2025 rate cut dropped to 6% in early Asian trading hours today, from 16% prior to the Fed's decision. This was according to the CME FedWatch tool.
US rate cuts usually benefit emerging market assets such as Indian equities by attracting foreign inflows.
Market analysis
Expert insights on market correction and US economy
Commenting on the situation, Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said when valuations are high, the market only needs a trigger for a sharp correction.
The trigger was provided by the Fed's guidance of fewer rate cuts in 2025, contradicting market expectations.
However, he added that comments from the Fed chief regarding the economy and labor market were positive indicators of a resilient US economy.
Global factors
Impact of US bond yields and dollar index
The yield on benchmark US 10-year notes hit a seven-month high of 4.524% on Wednesday and was last seen at 4.514%.
The shifting expectation of Fed rate cuts drove the dollar index, which measures the US currency against six rivals, to its highest since November 2022 on Wednesday. It was last seen at 108.15 in early trading today.
Higher bond yields make US assets more attractive, resulting in capital outflows from emerging markets like India.