We cover why Indian markets are falling.

The News

Since the start of this week, the Nifty 50 has fallen by 2.3% from its last week’s close. Metals have taken the worst hit, with Nifty Metal falling by 3.91% this week.

On the flip side, the Nifty FMCG index has fallen by just 0.71% and the Nifty Pharma index has increased by 0.71%.

So, what’s happening in the market? Let’s look at what has changed and what could happen going forward.

Key Reasons Behind the Market Decline

1. Global uncertainty and U.S. Fed decision

Investors are on edge because of an anticipated interest rate cut, which is expected to be the most significant in four years.

While lower interest rates are typically considered good, given the current global economic climate, investors at large do not know how it would play out.

This unpredictability has led investors to adopt a cautious approach, resulting in reduced foreign investments in Indian markets and contributing to the recent downturn.

2. Widening trade deficit and currency depreciation
India’s trade deficit (the difference between imports and exports) has expanded significantly, reaching approximately $38 billion in November, well above the expected $24 billion. The reason? Higher gold imports.

India’s gold imports in November reached a record high of $14.86 billion, a four-fold increase compared to November last year according to commerce ministry data.

It places downward pressure on the Indian rupee. potentially leading to higher inflation and ultimately lesser profit margins.

3. FII outflows
Foreign Institutional Investors have been net sellers this week, with over ₹8000 crore sell-off.

Their exit can lead to increased volatility and again a downward on INR as money flows out, creating a double-whammy.

Apart from that, the broad market index such as the Nifty 50 has been on a downward trend for the past two months. Though it has recovered somewhat from its recent lows, the prospects for businesses don’t seem as bright as they were a few months ago.

For instance, the revenue growth of Indian companies has hit a 16-quarter low, with Q2 earnings of the Nifty 50 companies growing by just 4%. This was the second straight quarter when the Nifty earnings grew in low single digits.

Also, the GDP has grown at 5.4% in the July–September quarter, much lower than the RBI’s expectation of 6.8%, raising concerns for the near future about the ability to sustain corporate earnings growth.

To Conclude

The recent market decline reflects a mix of global uncertainty, a widening trade deficit, and FII outflows, creating headwinds for Indian equities.

While volatility is expected to persist, the market’s direction will depend largely on global policy clarity and domestic economic recovery.