Why is the Indian Stock Market Falling Ahead of US Fed Income?

Summary: Indian stock markets are falling and there are several reasons for it. Know it here.

Early trading on December 19 showed a steep decline in the Indian equity markets. The Sensex slid 1,162.20 points, or 1.4%, to an intra-day low of 79,020, recovering from the critical support level, while the Nifty 50 fell as much as 1.4% to an intra-day low of 23,870.30. By indicating that it intends to drop rates more gradually next year, the US Fed alarmed sentiment.

Private banking shares fell due to the Dalal Street collapse; HDFC Bank Ltd., ICICI Bank Ltd., and Axis Bank Ltd. alone contributed more than 250 points to the Sensex loss. 

Even though the market has taken in a 25 basis point rate drop today, the 10-year US bond rates continued to increase, and a record low rupee further accelerated the decline.

Foreign outflows are triggered by a lower currency. According to data, on Wednesday, FPIs sold stocks for Rs 6,409.86 crore. HSBC said, "The external pressure on the rupee is becoming more intense due to high US interest rates, idiosyncratic EUR weakness, and tariff risks for the yuan.”

In intraday trading on Friday, December 20, the Indian stock market benchmark Sensex fell more than half a percent for the fifth straight day as the US Fed hinted that rate reduction may proceed more slowly in the future.

The Sensex fell more than 500 points to its day's low of 78,673.68 after opening at 79,335.48 compared to its previous finish of 79,218.05. Similarly, the Nifty 50 fell around 150 points to 23,807.30 after opening at 23,960.70 compared to its previous finish of 23,951.70.

Global market sentiment was affected by the US Federal Reserve's rate-cut outlook, even though it lowered its benchmark interest rate by 25 basis points to 4.25–4.50% on December 18, as the market was expecting. 

Contrary to the market's forecast of three or four rate cuts by the end of 2025, the Fed reduced its outlook for rate reductions, predicting only two additional rate cuts of a quarter-percentage point.

One of the main causes of the current decline in the Indian stock market has been the ongoing release of Indian stocks by foreign institutional investors (FIIs).

Market morale suffered on Friday when the Indian rupee fell to a record low of 85.34 to the dollar. Foreign investors are deterred from making investments in the Indian market by a weak rupee.

New worries about India's worsening macroeconomic situation have impacted market sentiment. In November, the nation's trade deficit reached a record high.

All eyes are on the December quarter (Q3) profits after Indian corporates' poor Q1 and Q2 results. Although analysts anticipate a recovery in profitability, they suggest that a strong recovery may only be anticipated starting in Q4.