Views on why Sensex, Nifty are falling by Mayank Mundhra, FRM- VP Risk & Head Research Abans Group
Below the Views on why Sensex, Nifty are falling by Mayank Mundhra, FRM- VP Risk & Head Research Abans Group
The recent downturn in Indian stock markets is driven by both global and domestic challenges. Globally, escalating trade tensions have played a significant role as Donald Trump has announced a 25% tariff on imports from Canada and Mexico, effective March 4, along with an additional 10% duty on Chinese goods.
Adding to market uncertainty, the U.S. Federal Reserve has delayed further interest rate cuts, leading to worries about prolonged tight financial conditions. Soft U.S. economic data has further spooked investors - the S&P Global Flash U.S. Composite PMI Output Index, which tracks business activity across the manufacturing and services sectors, fell to 50.4 in February, its lowest in 17 months, indicating a near-stagnant economy.
Domestically, several factors have exacerbated market declines. India’s GDP growth had slowed to a two-year low of 5.4% in the second quarter of FY25. Foreign institutional investors (FIIs) have pulled nearly Rs.2 lakh crore from Indian equities since October 2024. A depreciating rupee - recently weakening to 87.37 against the U.S. dollar - has made Indian assets less attractive to foreign investors, further accelerating outflows. A weaker rupee also raises concerns about inflation due to increased import costs, adding to market pressures.
In response, the Reserve Bank of India (RBI) has taken measures to stabilize the economy. In February, it cut the repo rate by 25 basis points to 6.25%, the first rate cut in nearly five years. Additionally, the RBI announced a $10 billion dollar-rupee swap auction to inject durable liquidity into the banking system and ease financial conditions.
The markets are adjusting valuations of stocks, particularly the high PE ones, as long term growth prospects are being looked at more realistically vs optimistically . The euphoric nature which was prevalent till october'24, is being normalised towards long term mean, in this fall.
Despite these headwinds, improving Q3 corporate earnings indicate underlying resilience. As global trade tensions ease and RBI’s policy measures take effect, investor confidence should improve, potentially leading to renewed inflows and a market recovery.
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