Following a brief respite on 14th March 2024, the Indian stock market is back in a downward trend. Today's trading session is marked by widespread pressure, particularly affecting small-cap and mid-cap indices. Small caps are experiencing a decline of around one per cent, while mid-caps are facing a more significant drop of over 1.40 per cent. The Nifty 50 index, which tracks the performance of India's top 50 large-cap stocks on the National Stock Exchange, ended the day at 22,023.35 points, marking a decline of 123 points or 0.56%.

In parallel, the Bombay Stock Exchange Sensex, which mirrors the progress of 30 prominent and long-standing corporations enlisted on the Bombay Stock Exchange, has experienced a notable decline of 550 points in value.

Reasons For the Indian Stock Market Downturn

1. Lack of Fresh Triggers

The Indian stock market is currently facing challenges as it lacks new positive factors to maintain the upward trend seen in recent gains. Investors are cautious and unsure about the market's future direction due to the absence of fresh catalysts.

2. US Federal Reserve Meeting Uncertainty

The Indian stock market is facing increased apprehension ahead of the upcoming US Federal Reserve meeting as worries grow about possible setbacks in interest rate reductions. Rising US inflation rates have sparked concerns that the Federal Reserve could delay its planned rate cuts. This potential outcome may discourage foreign investments in emerging markets such as India, leading to a decline in investor confidence.

3. Domestic Economic Indicators

Amidst the market chaos, India's economic performance continues to disappoint. Retail inflation stubbornly persists at high levels with minimal signs of improvement, while industrial output for January falls short of expectations. These lacklustre economic indicators further contribute to the existing unease in the Indian stock market.

4. March Effect

In March, the Indian stock market typically sees a downturn as investors and companies engage in profit-taking activities before the fiscal year concludes. During this period, many individuals and organisations sell off their equity holdings to secure gains before the year-end.

5. Lofty Valuations

Industry analysts are raising red flags about the high valuations in the small-cap sector of the Indian stock market. The recent spike in prices is largely driven by increased retail investor interest, leading to worries about a possible bubble forming in the market.

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Global Factors Intensify Pressure to be Consider

1. Weak Sentiment

The Indian stock market is impacted as global investor confidence is shaken by underwhelming US data. The looming uncertainty surrounding the upcoming US Federal Reserve meeting compounds market worries.

2. FIIS Selling

Foreign Institutional Investors (FIIs) have contributed to the recent decline of the Indian stock market by engaging in substantial selling transactions in the cash segment. Specifically, on March 13, 2024, FIIs sold off Indian shares amounting to 4,595 crores, with an additional 1,356 crore worth of shares being sold on March 14, 2024.

3. Increase in Crude Oil Prices

The Indian economy faces a looming threat as rising crude oil prices, along with government efforts to reduce them, are anticipated to exacerbate inflation. This situation is causing concerns in the Indian stock market and is raising uncertainty among investors.

Conclusion

The current state of the Indian stock market is mirroring apprehensions, as small-cap and mid-cap stocks are experiencing the most significant declines. Furthermore, major indices are also facing substantial losses, making this week one of the least successful since October last year. Investors are vigilantly observing both local and global events as they manoeuvre through this phase of increased market instability.